ARTICLE IN PRESS. Energy Policy

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1 Energy Polcy 37 (2009) Contents lsts avalable at ScenceDrect Energy Polcy journal homepage: Measurng effcency and productvty change (PTF) n the Peruvan electrcty dstrbuton companes after reforms $ Raúl Pérez-Reyes a, Beatrz Tovar b, a Organsmo Supervsor de la Inversón en Energía y Mnera, Osnergmn, Perú b Infrastructure and Transport Research Group (EIT), Department of Appled Economcs, Unversty of Palmas de Gran Canara, Span artcle nfo Artcle hstory: Receved 11 June 2008 Accepted 30 January 2009 Avalable onlne 18 March 2009 JEL Classfcaton: L94 Keywords: Electrcty dstrbuton Effcency drvers Productvty abstract Ths paper analyzes the evoluton of productvty of the electrcty dstrbuton companes n Peru, to assess whether reforms have mproved the effcency n ths sector. The paper also dentfes potental sources of productvty changes, based on market restructurng the electrcty sector and changes n property. To do ths, we rely on a set of data for 14 dstrbuton companes, for the perod Our analyss suggests that mprovements n the effcency and productvty of electrcty dstrbuton n Peru have occurred, and that there s a relatonshp between the restructurng of dstrbuton sector and the enhancement of productvty. & 2009 Elsever Ltd. All rghts reserved. 1. Introducton Untl 1992, the Peruvan electrcal system was centrally managed by publc companes. From 1986 to 1990, the electrcty system went through an mportant crss, whch was both fnancal and economc. The former was due to the hgh external debt, and the latter to the electrcty rates beng fxed accordng to poltcal crtera. These rates dd not ensure that the producton costs were covered, thus generatng large losses and an mportant fscal defct for the companes n the sector. These factors made t dffcult for the companes to fulfl ther operatve ams, and to carry out ther nvestment projects. To resolve ths stuaton, the government nstgated several measures. In August 1990, the electrcty rates were ncreased, allowng Electro Peru to be restructured. 1 Secondly, the Government vertcally dvested the ndustry nto three actvtes: generaton, transmsson and dstrbuton. Snce 1994 several state-owned companes have been prvatzed. The purpose of the paper s to analyze the evoluton n the productvty of electrcty dstrbuton companes n Peru, n order to know f the 1993 reforms have acheved ther objectves. Ths paper provdes a comparatve assessment of the techncal effcency levels of the dstrbuton companes, between 1996 and 2006, by usng a two-step procedure. Frst of all, we assess the effcency levels and the total factor productvty changes usng a Malmqust total factor productvty (TFP) ndex, and breakdown the total change by relyng on a non-parametrc data envelopment analyss () framework, as outlned by Färe et al. (1990, 1994). 2 In the second stage, we analyze, usng parametrc and non parametrc procedures, the relatonshp between the effcency scores obtaned n the frst stage and a set of varables that may explan the effcency of the frms. The paper s organzed as follows. Secton 2 summarzes the reforms n Peru s electrcty sector. In Secton 3, we present the methodology that we follow to measure effcency and productvty changes. Secton 4 provdes a bref revew of the lterature on these measurements n the electrcty dstrbuton sector. Afterwards, n Secton 5, we dscuss the data and ts lmtatons, and present the estmated models and the results obtaned. Lastly, Secton 6 concludes by drawng the man lessons for polcy. $ A prevous verson of ths paper has been publshed lke workng paper n FUNCAS (Fundacón Española de Cajas de Ahorro) no 425/2008. Correspondng author at: Departamento de Análss Económco Aplcado, Campus Unverstaro de Tafra, 35017, Modulo D. Despacho 2.20, Las Palmas de Gran Canara, España, Span. Tel.: ; fax: E-mal address: btovar@daea.ulpgc.es (B. Tovar). 1 Durng ths tme, the state controlled the management of the electrcty system by means of ths publc company. 2 Malmqust ndexes have been used to measure effcency changes n electrcty utltes (Hjalmarsson and Vederpass, 1992). For recent surveys, see Jamasb and Polltt (2003) and Jamasb et al. (2005). Malmqust ndexes have also been used to measure effcency changes n other regulated nfrastructure servces, such as ports (Estache et al., 2004), arports (Abbot and Wu, 2002) and the natural gas ndustry (Waddams-Prce and Weyman-Jones, 1996) /$ - see front matter & 2009 Elsever Ltd. All rghts reserved. do: /j.enpol

2 2250 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) The reform process and the nsttutonal desgn of the electrcty sector n Peru As part of the 1993 reform process, the generaton and dstrbuton actvtes of Electro Lma 3 were separated. Once broken down vertcally, the prvatzaton of the resultng dstrbuton company started. 4 To promote ex-ante competton, and followng the steps of the Argentnean experence, the dstrbuton company for the department of Lma was dvded nto four concessons. Lma cty was dvded n two areas, whch were Lma South and Lma North and were granted to Edelsur, subsequently called Luz del Sur, and Edelnor, respectvely. The rest of the department of Lma was also dvded nto two concessons that were granted to EdeChancay and EdeCañete. These concessons were granted by publc aucton n July The reform of the country s other dstrbuton companes dd not commence untl March 1997, wth the prvatzaton of the south coast dstrbuton company, Electro Sur Medo. In December 1998, the north coast, north and central mountans dstrbuton companes, Electro Norte, Electro Noroeste, Hdrandna and Electro Centro, were publcly auctoned. However, at the begnnng of 2002 these companes were renatonalzed, due to the concessonares non-complance wth the nvestment commtments. When the reform process began the ntenton was to prvatze all the frms, but due to resstance from ctzens n the southern Andes and n the Amazon ran forest, certan dstrbuton companes have remaned state owned; these frms are Seal, Electro Sur, Electro Sur Este, Electro Orente and Electro Ucayal. One of these frms, Seal, s located n Arequpa, Peru s second largest cty; another, Electro Sur Este, s located n Cuzco. Ths s a major nternatonal tourst destnaton that s assocated wth Machu Pcchu. The man reason that southern frms were not reformed s because ths regon rejected prvatzaton. The 1992 reform mpled the adjustment of the dstrbuton actvtes rates. 5 The rate adjustment of the dstrbuton companes dffers, dependng on the type of customer. The legslaton contemplates two types of customers, regulated and free. Free customers are those whose demand for electrcal power s over 1 MW, and the rest are regulated customers. 6 Free customers negotate the rate n a competton framework wth the dstrbutors or generators, whle for regulated customers the rate s establshed by the regulatory body: OSINERGMIN (Energy and Mnng Investment Supervsory Body). The regulatory mechansm used n the rate adjustment s a hybrd of the effcent model company approach combned wth yardstck competton. Ths regulatory process s carred out wth a four year regulatory lag, whch means that to date there have been four rate revsons, n 1993, 1997, 2001 and The State s level of nterventon n the rate adjustments was reduced when the Law of Electrcal Concessons, herenafter LCE was passed and an ndependent regulatory commsson was set 3 Electro Lma suppled the department of Lma, whose captal s the country s man cty n terms of populaton and ndustral producton. Lma s home to 8 mllon of the total Peruvan populaton of 27 mllon and to about 70% of the country s ndustral estates. 4 Electro Lma was dvded n two generaton companes (Etevensa, a thermal power plant, and Edegel, hydroelectrc power plants), four dstrbuton companes (Edelsur, Edelnor, EdeChancay and EdeCañete), and also ther transmsson assets were transferred to Etecen, the new state transmsson company for the centralnorth nterconnected system. In 1999 Edelnor took over EdeChancay. 5 In Peru the concessonary dstrbuton companes carry out the operatonal actvty, such as meterng, nvocng, collecton, etc. 6 As a pont of reference, a regular home n an average ncome neghbourhood contracts a 10 kw energy supply, whch s the hundredth part of the threshold requred to be a free customer. up to mpose the crtera establshed by the law. These ncluded rate-revson perods, methodologcal crtera, the cost of captal, and rate-revson mechansms. The reform ntally ncreases the rates of dstrbuton, and subsequently tred to correct pror dstortons. Snce then, the rate-revson process has acted n accordance wth the cost parameters of an effcent company, as establshed by the regulatory framework. The reforms were an attempt to attract prvate captal to fnance the expanson of the power supply manly n the generaton process, and as Fg. 1 shows, ths was acheved. Prvate nvestment growth averaged 34% per year durng the perod analyzed. Ths growth rate could have been hgher, but a sgnfcant mportant group of prvatzed companes were renatonalzed n Fg. 1 shows that the frst half of the 90 s was marked by a complete lack of prvate nvestment. The reform process began n 1994, and between 1995 and 2000 perod, nvestment n power dstrbuton grew, and ths was explaned by the nvestment done by the prvate frms; 8 out of 14 dstrbuton companes were prvatzed. From 2002 onwards, wth the return of Hdrandna, Electro Norte, Electro Centro and Electro Noroeste to state control, publc nvestment has grown; nevertheless, t s stll lower than the prvate sector s contrbuton. 7 Therefore, the nstalled power capacty ncreased by 50% durng the perod. Moreover, there has been substantal mprovement n several of the ndcators assocated wth the power generaton capacty, coverage and effcency of the publc servce electrcal companes. 8 The recent evoluton of the sector s relevant to the analyss conducted n ths paper. Table 1 shows the varatons of the factors that demonstrate the characterstcs of the dstrbuton companes durng the perod. 9 The output varables mproved sgnfcantly durng ths perod; the number of customers has ncreased substantally, wth about 5.2% and 8.5% more low- and medum-voltage customers, respectvely. Ths s matched by ncreased low and medum voltage (MV) sales of 7.2% and 9.9% respectvely. Moreover, the length of dstrbuton network has grown by 8%. Employment has ncreased by 0.4%, but the fgures range wdely. Some operators, such as Ucayal and Electro Puno, have seen respectve employment ncreases of 11.9% and 8.9%. Others, such as Electro Centro and Hdrandna, have seen respectve drops of 6.7% and 4.7%. Captal nput has also ncreased by an average of 3.1%, although here the range s more restrcted. In fact, all frms have ncreased ther net fxed assets by 8.9%, except for Electro Orente whose net fxed assets dropped by 4.2%. Fnally, Table 1 also shows we have three knds of frms, those that were never prvatzed, those that were n the prvate sector for some years, and thrdly those that were prvatzed and reman so. We refer to the frms that belong to the second and thrd groups as reformed. Table 2 shows some partal productvty ndcators for Peruvan power dstrbuton companes durng the perod. We can see that, at an ndustry level, the partal productvty ndcators have mproved, whch suggests that the reform process has been favourable. In general, results are also postve at a frm level, although n some cases they are negatve. 7 Increases n publc nvestment are also explaned by the larger mnng royaltes obtaned by regonal governments, whch have been used n part to ncrease power supply, especally n rural areas. 8 Dammert et al. (2005) show the evoluton of the Peruvan electrcal sector s man ndcators before and after the reform process. 9 These companes represent nearly all the Peruvan dstrbuton sector. Evdence of ths s that for the year 2006 they jontly made up 99.5% of the sales, 99.4% of the clents and 97.5% of the employment.

3 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Prvate Investment Publc Investment Mllons US$ Fg. 1. Investment n electrcal dstrbuton actvty: Source: Mnstry for Energy and Mnes, Peru. Own elaborated. Table 1 Varaton of the man varables of the electrcty dstrbuton companes n Peru: Company Low-voltage customers (%) Medumvoltage customers (%) Low-voltage sales (%) Medumvoltage sales (%) Dstrbuton network (%) Workers (%) Net fxed assets (thousand of soles n 1994) (%) Demand areas Property Edecañete P P P Edelnor P P P Electro orente and 5 E E E Electro puno a , 3 and 4 E E E Electro sur este a , 3 and 4 E E E Electro sur medo , 4 and 5 P P P Electro ucayal and 3 E E E Electro centro , 4 and 5 E P E Electro noroeste and 4 E P E Electro norte , 3 and 4 E P E Electro sur and 3 E E E Hdrandna and 3 E P E Luz del sur P P P Seal and 3 E E E Average E ¼ state, P ¼ prvate. Source: energy nvestment supervsory body of Peru, OSINERG. Own elaborated from Statstcal yearbooks. a Percentage varaton refers to perod , wth the excepton of the dstrbuton network km data. Sector Type of demand 1 Hgh-densty urban 2 Medum-densty urban 3 Low-densty urban 4 Urban Rural 5 Rural Even when there s some consensus regardng the usage of these ndcators to evaluate the development of effcency n the electrcty dstrbuton companes, only a partal perspectve s offered. Ths s because these ndcators may be affected by factors, such as the technology underlyng the dstrbuton systems, the captal substtuton of the workforce or the densty of the area of nfluence of the dstrbuton companes. Ths s why these defcences can be resolved by usng a total factor productvty ndex. 3. Measurng and decomposng the changes n productvty: the conceptual background Interest n productvty and effcency analyses of companes has sgnfcantly grown n recent decades, and s due to the potental of these technques as regulatory tools. They are especally relevant n sectors where adjustment s normal; e.g. nfrastructure ndustres and publc utltes. Indeed, the possblty of comparng the performance of regulated companes does

4 2252 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 2 Partal productvty ndcators of the electrcty dstrbuton n Peru: Company Sales/customers (MWh) Sales/worker (MWh) Losses/customers (MWh) Property Var. (%) Var. (%) Var. (%) Edecañete ,507 2, Prvate Edelnor ,625 7, Prvate Electro Orente ,043 1, Publc Electro Puno a , Publc Electro Sur Este , Publc Electro Sur Medo ,145 1, Prvate Electro Ucayal ,229 1, Publc Electro Centro b , Publc Electro Noroeste b , Publc Electro Norte b , Publc Electro Sur , Publc Hdrandna b , Publc Luz del Sur ,699 7, Prvate Seal ,283 2, Publc Mean ,677 2, Source: Energy Investment Supervsory Body of Peru, OSINERG. Own elaborated from statstcal yearbooks. a Ths ndcator refers to Electro Puno s frst year of exstence, b These companes were prvatzed jontly n 1998 and returned to the Peruvan State n contrbute to easng the problem of nformaton asymmetres, by ncreasng effcency n the regulatory agences. Productvty and effcency are related but dfferent concepts. Productvty s the rato between the products obtaned and the factors used n ts producton. On the other hand, techncal effcency s the capacty of obtanng the maxmum amount of output from certan nputs (output orentaton). Alternatvely, as the capacty of obtanng a gven output level usng the mnmum amount of nputs (nput orentaton). Also, a company presents effcences of scale, f t reaches the maxmum productvty wth the current technology. Wth the prevous defntons we can easly deduce that techncal effcency s only one of the factors that determne productvty. Productvty measurement has a long hstory, and the earlest approach was based on sngle or partal factor productvty measurement. Although t s easy to calculate, n practce ths ndex s too smple and could gve a msleadng pcture of performance, when there s more than a sngle output or a sngle nput. In the real world frms usually use multple nputs to get multple outputs, so the measurng of productvty must be done usng total factor productvty (TFP) measurement. Thus, TFP s a generalzaton of sngle factor productvty measurement. TFP growth refers to the change n productvty over a perod of tme. There are several approaches to productvty measurement. In order to take nto account the contrbuton of effcency change to productvty change, we use a non parametrc fronter approach. 10 Among the most used ndexes n measurng productvty changes we fnd the Fsher ndex (1922), the Törnqvst ndex (1936) and the Malmqust ndex (1953). Of the frst two ndexes, the Malmqust ndex has the advantage of not requrng nput prces or behavoural assumptons. These two characterstcs make the Malmqust ndex very sutable for analyzng productvty changes n both publc and regulated sectors. Moreover, the change n productvty measured wth the Malmqust ndex can be broken down nto the catchng-up effect;.e. the effcacy wth whch technologcal knowledge s appled to producton, and the fronter shft due the avalable technology mprovement (Nshmzu and Page (1982) and Grfell and Lovell (1993). Fnally, the Malmqust ndex can also be used to separate the catchng-up 10 For a more n depth dscusson of the relatonshp between effcency and productvty see Grosskopf (1993). effect nto techncal effcency and scale effcency. Ths gves a sense of the extent to whch the effcency gans are acheved purely from changes n nput mx or from better adjustment of the sze to the demand. To llustrate the Malmqust ndex calculaton 11 t s necessary to defne the technology of reference. Technology can be represented through the nput dstance functon 12 used by Caves et al. (1982), D t (y t, x t ) ¼ Max m [ mx1: T (y t, x t /m) ¼ 0]. Scalar l s the maxmum deflaton of the nputs vector (x t ), so the resultng deflated nputs vector (x t /m) and the outputs vector (y t ) are on the fronter. Thus, D t (y t, x t )X1;.e. the dstance equals one when the evaluated company s effcent and s on the fronter. As the analyss of productvty change takes place durng two tme perods, the Malmqust ndex s requred to compare the nput output vector of one perod of tme, wth the technology present n a dfferent perod. Thus, wth D t (y t, x t ) and D t+1 (y t+1, x t+1 ) we are comparng each company wth the fronter of the perod t belongs to, whle n D t+1 (y t, x t ) and D t (y t+1, x t+1 ) the observatons are from a perod dfferent to the fronter they are beng compared wth; therefore, the dstance functon can be less than one. To sum up, the Malmqust ndex calculates the productvty change of a company by measurng the dstance n two perods of tme t and t+1, n relaton to the exstng technologcal fronter n t; t determnes ths productvty change n relaton to the exstng technologcal fronter n t+1. To avod problems derved from the ad hoc choce of the technology of reference, Caves et al. (1982) propose usng the geometrc mean of both perods. The Malmqust ndex s as follows: M tþ1 ðy tþ1 ; x tþ1 ; y t ; x t Þ¼ Dt ðytþ1 ; x tþ1 Þ D t ðyt ; x t Þ " # 1=2 ðy tþ1 ; x tþ1 Þ ðy t ; x t Þ D tþ1 D tþ1 Ths s the approach used by Färe et al. (1990), and gven that they accept neffcent behavour they may decompose the ndex 11 Readers who are not nterested n the mechancs of the ndexes can skp to Secton In ths paper nput orentaton s used, as t s sutable for regulated ndustres that are generally characterzed by endogenous nputs and exogenous outputs.

5 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) X 2 X 2 B B A C X t+1 E D X t A C X t+1 E D X t F L t (y t ) F L t (y t ) L t+1 (y t+1 ) L t+1 (y t+1 ) 0 X 1 0 X 1 Fg. 2. Change n techncal effcency and technologcal change. (A) Change n techncal effcency (E t+1 ). (B) Shft n the Fronter. Techncal change (T t+1 ). (a) Change n techncal effcency E tþ1. (b) Shft n the fronter techncal change (T tþ1 ). as follows: M tþ1 ðy tþ1 ; x tþ1 ; y t ; x t Þ¼ Dtþ1 ðy tþ1 ; x tþ1 Þ D t ðyt ; x t Þ " # Dt ðytþ1 ; x tþ1 Þ D t 1=2 ðyt ; x t Þ D tþ1 ðy tþ1 ; x tþ1 Þ D tþ1 ðy t ; x t Þ ¼ E tþ1 T tþ1 where E t+1 s the catchng-up perod, and T t+1, s the fronter shft. The followng fgure llustrates the concepts that we have just defned for one product (y) and two productve factors (x 1, x 2 ). To that end both soquants, L t (y t ) and L t+1 (y t+1 ), whch correspond to both perods of tme t and t+1 are represented. We assume that y t ¼ y t+1. Fg. 2 shows the stuaton of a company that uses the combnaton of factors X t n the moment t (at pont D) and the combnaton X t+1 n the moment t+1 (at pont C). In terms of the gven dstances, the Malmqust ndex s determned by M tþ1 ðy tþ1 ; x tþ1 ; y t ; x t Þ¼ OE=OD OA=OC OF=OD 1=2 OA=OC OC=OB OE=OD OA OF 1=2 ¼ E tþ1 ¼ OE=OD OA=OC OB OE T tþ1 If n both perods the company s at ts respectve fronters, the frst term wll be equal to 1 and the productve change between both perods can only be explaned by the movement of the fronter. If the second term equals 1, then the fronter has not shfted and the estmated productvty changes can only be explaned by changes n the company s effcency n both perods;.e. catchng-up. In all other cases, productve changes reflected n M t+1 are a mx of effcency changes and fronter shfts. Subsequently, Färe et al. (1994) proposed an even larger decomposton of ths ndex, when they dstngushed between full techncal effcency and changes n scale effcency wthn the term that takes the change n techncal effcency, E t+1.! E tþ1 ¼ Dtþ1 ðy tþ1 ; x tþ1 Þ D t ¼ ðyt ; x t Þ Dtþ1 ðy tþ1 ; x tþ1 Þ D t ðyt ; x t Þ VRS! ðy tþ1 ; x tþ1 Þ vrs Dtþ1 ðy tþ1 ; x tþ1 Þ crs =D tþ1 D t ðyt ; x t Þ crs =D t ðyt ; x t Þ vrs ¼ ETP tþ1 ES tþ1 Ths dstncton enables us to contemplate those stuatons where a productve unt can be techncally effcent, as the producton volume uses the least quantty of factors; however, t s not stuated n the optmum producton scale, because t s not adequately szed. Therefore, the changes n productvty that are strctly related to techncal effcency appear n ETP t+1, whle these related to the productve unt sze appear n ES t These ndexes use the dstance functon noton, so ther calculaton requres the pror estmaton of the correspondng fronter. Estmatng the effcency fronter can be done by usng parametrc and non-parametrc methods. 14 Both technques allow the relatve effcency ratos wthn a group of analyzed unts to be derved, so that the unt s effcency s compared wth effcency envelopment. Accordng to the decomposton proposal by Färe et al. (1994), four dstance functons defned under constant returns to scale (CRS) and two under varable returns to scale (VRS) are requred n order to calculate the Malmqust ndex. Here s one standard format for presentng the nput orented lnear programmng problem that s used n ths paper: Mn y 0 s:a: YlXY 0 yx 0 lxp0 lx0 k s a vector that descrbes the percentage of other companes, and s used for constructng the effcent company. X and Y are the companes nput and output vectors, and X 0 and Y 0 are the nputs and outputs of the company that s beng evaluated. The effcency of the evaluated company s represented by h Bref revew of the lterature Table 3 shows the dfferent studes that analyze the effcency and/or productvty of the electrcty dstrbuton companes. Wth emprcal applcatons, the authors have had to deal wth the problem of defnng the nput and output varables. Table 3 presents a summary of the nput and output varables used n the majorty of electrcty dstrbuton effcency studes. Most papers consder more than one output dmenson. Some authors follow 13 Ths decomposton has been crtczed by some authors because t measures techncal change aganst CRS technology nstead of VRS technology. Varous alternatves have been proposed; however, none of them have ganed wdespread acceptance. See Grfell and Lovell (1999) and Balk (1999) for dscusson on ths ssue. 14 For a comparatve dscusson of the advantages and dsadvantages n both technques, see Lovell (1993).

6 2254 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 3 Summary of emprcal evdence on electrcty dstrbuton effcency. Authors Inputs Outputs Data Models and measures Weyman-Jones (1991) Mlots (1992) Hjalmarsson and Vederpass (1992) Fnancal captal or network length, labor Length of lnes (km), nstalled capacty (kv A), general expenses, techncal and admnstratve work (h) Workforce (h), hgh-voltage lnes (km), low-voltage lnes (km) and transformaton capacty (kv A). Sales, customers Customers, energy suppled (kwh) and total area provded Hgh- and low-voltage energy sales (kwh), number of customers for hgh and low voltage 12 dstrbuton companes n England and Wales n 1986 and electrcty dstrbuton dstrcts of the Greek Publc Power Corporaton (PPC). The author does not menton the year Electrcty dstrbuton sector n Sweden for the perod CRS CRS MI Pollt (1994) Number of employees, transformers (MV A) and crcut klometers. Number of customers, resdental sales (GWh), nonresdental sales (GWh), servce area (km 2 ) y maxmum demand (MW) 145 dstrbuton system n the Unted States and the Unted Kngdom n 1990 OLS Bagdadoglu et al. (1996) Scars (1999 Workforce, transformaton capacty (MV A), network sze (km), network general expenses and losses (MWh). Work (number of full-tme workers), captal (klometers of dstrbuton lnes). Number of customers, offered electrcty (MWh), maxmum demand (MW) and servce area (km 2 ) Dstrbuted energy (GWh), number of customers 70 retal dstrbuton companes n Turkey n ENELs and 37 MUNIs n Itala for the perod CCR and VRS (5 specfcatons) CRS Model 1: two outputs and two nputs Model 2: one output (customers) and two nputs Model 3: one product (sales) and two nputs y SFA (Stochastc Fronters) Hattor et al. (2003) Operatonal costs, total operatonal costs (ncludes captal costs), densty (customers/network km) and load factor. Sales (MWh), number of customers 21 companes (12 from the Unted Kngdom and 9 from Japan) for: 1985/86 and 1997/ CRS and VRS wth dfferent costs specfcatons YSFA Sanhueza (2003) Gannaks et al. (2003) Operatonal and mantenance costs, captal costs, number of workers, remuneratons, not sold energy Operatonal costs, total operatonal costs (ncludes captal costs) Energy sales (kwh), maxmum demand (kw), number of customers, dstrbuton network (km) Energy sales (kwh), number of consumers, dstrbuton network length (km) 35 dstrbuton companes n Chle for companes from the Unted Kngdom for the 1991/92 and 1998/99 perods VRS wth bootstrap TFP (MI) Qualty ndcators: supply qualty (frequency and duraton of nterruptons), commercal qualty (relatonshp between operators and customers), product qualty (frequency, ampltude and wave) Motta (2004) Operatonal costs, total operatonal costs (ncludes captal costs) Total sales (MWh), number of consumers and klometers of dstrbuton lnes 14 companes prvatzed n Brazl and 72 companes from the Unted States for years 1994 and 2000 CRS and VRR TFP (MI) and SFA Envronmental varables: Maxmum demand (MW), densty (customers/ network km) and resdental customers/total customers rato Pombo and Taborda (2006) Number of employees, number of transformers, network sze (km). Energy sales (GWh), number of customers. 12 companes that supply 20 ctes that are part of the Natonal Interconnected System (SIN) for the perod TFP (IM) Envronmental varables: regonal GDP per-cápta, natonal nstalled capacty, urban area provded

7 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 3 (contnued ) Authors Inputs Outputs Data Models and measures Abbot, (2006) Physcal captal (dstrbuton lnes, capacty lnes of transmsson statons and generaton capacty lnes), energy usage (TJ). Energy consumpton (MWh) 7 electrcty dstrbuton jursdcton n Australa for the perod TFP (MI) Yu et al. (2007) Operatonal costs, total operatonal costs (ncludes captal costs), duraton of energy nterruptons and losses (wth ts respectve prces) Number of consumers, delvered energy (GWh) and Length of lnes (km) 14 companes from the Unted Kngdom for the 1990/ /2004 perod TE and AE Estache et al. (2008) Installed capacty (MW) and number of workers Generaton (GWh), Number of consumers and Sales (GWh). 12 companes that provde servces n 12 state members of the Southern Afrca Power Pool (SAPP) between 1998 and 2005 TFP (MI) TE ¼ techncal effcency; TFP ¼ total factor productvty; IM ¼ Malmqust ndex; ¼ data envelopment analyss; SFA ¼ Stochastc Fronter analyss; CRS ¼ constant returns to scale; VRS ¼ voltage returns to scale. Source: own elaborated from several studes. the approach developed by Hjalmarsson and Vederpass (1992) that consders four outputs: medum- and low-voltage sales, as well as medum- and low-voltage customers. Others, lke Hattor et al. (2003) and Pombo and Taborda (2006) and the authors of ths paper, follow Neuberg (1977) who argues that at the very least both the number of customers served and total energy sold qualfy as potental outputs n ths sector. Jamasb and Polltt (2003) pont out that by ncludng both these outputs the spread of demand among the connecton ponts s consdered. Wth regard to nputs, the dstrbuton company requres labour and a network nfrastructure; e.g. poles, wres, substatons, underground cameras, etc. The standard practce s to consder the number of employees, the transformer capacty, the length of the network and the operatng cost; the latter f cost s used as nput varable, see Jamasb and Polltt (2003). Fnally, power dstrbuton has several unwanted effects, such as the number and duraton of power servce nterruptons. Authors lke Gannaks et al. (2003) and Yu et al. (2007) have ncorporated these undesrable effects nto the specfcaton of the models, n order to analyze the productvty effcency and the changes n dstrbuton companes. Whle varous studes appled to the dstrbuton actvty dffer slghtly wth regard to the nputs and outputs they use, there s a certan consensus concernng the methodology; see also Qassm et al. (2005) and Pombo and Taborda (2006). Most of these papers have used non-parametrc methods and orentaton models. The nput orented model represents the company behavour regardng the decson over what quantty of nputs to use, gven that a determned demand of goods or servces need to be satsfed; see Thanassouls (2002) and Pombo and Taborda (2006). Ths type of orentaton better represents the publc electrcty servce provson, where the companes must attend to a determned exogenous demand for the concesson of dstrbuton n a specfc geographc area; for ths reason we use ths orentaton n our emprcal applcaton. The objectve of most of the recent papers s to analyze changes n effcency and/or productvty, due to sector reforms that usually nclude some type of prvate nvolvement. Some authors such as Hjalmarsson and Vederpass (1992) for Sweden, Bagdadoglu et al. (1996) for Turkey and Pollt (1994) for the USA and the Unted Kngdom found no evdence of dfferences n effcency between publc and prvate companes. However, others authors such as Motta (2004) for Brazl, Sanhueza (2003) for Chle and Pombo and Taborda (2006) for Colomba conclude that the mpact of prvatzaton upon the effcency of electrcal dstrbuton companes s postve. In general terms, the evdence rejects the relatonshp between greater effcency and prvate property for developed countres; however, n Latn Amerca the results appear to be dfferent. These results could be due to the dstrbuton frms havng several operatve problems pror to the reforms; these may nclude captal restrants, excess of possbly unsklled labour lnked to poltcal cycles, complcated and corrupted behavour wth respect to procurement, poltcal nfluence and so forth. The latter problem seems to be related to the nsttutonal envronment, 15 rather than the property regme; nonetheless, we wll test both possbltes. Fnally, other authors have tred to dentfy effcency drvers. Pollt (1994) found that average effcency s reduced as the sze of the frm ncreases. Mlots (1992) analyzed the mpact of geographcal characterstcs, sze and densty, and concluded that the dvsons operatng n urban centres have hgher effcency ndexes than those operatng n areas where the populaton s scattered. 5. Measurng effcency and productvty change 5.1. Data and models The choce of varables s based on the avalablty of data, and on our prevous dscusson of the current lterature. We would have lked to consder four outputs: medum- and low-voltage sales, as well as medum- and low-voltage customers. However, due to data restrctons we have followed the steps of Neuberg (1977), who consdered two outputs: sales (MWh) and the numbers of customers It should be noted that Colomba, Chle and Brazl ntroduced mportant macroeconomc reforms at the same tme as the electrcty reforms. 16 Estmatons wth four outputs were made: sales and customers, but dsaggregated nto low and medum voltage, respectvely. As expected, due to the hgh number of varables and the reduced number of observatons, most companes were located on the fronter. Ths provdes evdence for the reduced dscrmnatory power of these models.

8 2256 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 4 Statstcs of the varables used n Model 1. Varable Sales (MWh) Customers (number) Workers (number) Network length (km) SED Losses (MWh) Mean 711, , Mnmum 52,237 19, Maxmum 3,971, , Standard devat. 1,135, , SED ¼ medum and low-voltage converson substatons. Source: Energy Investment Supervsory Body of Peru, OSINERG. Own elaborated from Statstcal yearbooks. As regard nputs, as we have prevously stated, the dstrbuton company requres labour and a network nfrastructure. Labour s related to the number of employees. Wth respect to the measurement of the network nfrastructure, the numbers of klometres of medum voltage and of low voltage (LV) dstrbuton lnes were ntally used; and the numbers of MV to LV converson substatons. Unfortunately, n Peru ths nformaton s only avalable for the years 1996, 2000 and 2004, whch sgnfcantly reduces the number of avalable observatons. Therefore, we sought an alternatve measure that was reported annually. The correlatons between the physcal varables of the companes and the value of the land, machnery and equpment were analyzed for the ndcated years. The hgh correlaton between them shows that t s possble to substtute physcal captal varables for land, machnery and the value of equpment. Fnally, the only undesrable factors ncorporated n our analyss are the power losses. 17 There are losses assocated wth transportaton (techncal losses) and losses assocated wth theft (trade losses). Both affect power supply because more losses mean that the dstrbuton companes have to ncrease the power of the generators, n order to supply the same levels of electrcal energy. To sum up, two models, whch dffer n the way they measure captal nputs and n the number of avalable observatons, have been proposed. Model 1 has 42 observatons, from 14 observed companes durng the years 1996, 2000 and 2004, whle Model 2 has 151 observatons from 14 observed companes between 1996 and Both models consder two products: () annual sales n MWh, and () number of customers. Table 4 shows the statstcs for the varables used n Model 1. In Model 1, four nputs have been consdered: () the number of workers; () the dstrbuton power losses n MWh; () the medum-voltage and low-voltage network klometres; and (v) the number of substatons. Whle n Model 2, three nputs have been consdered: () the number of workers; () dstrbuton power losses n MWh; and () the monetary value of the actve captal durng the perod (the net fxed assets exploted) measured at 1994 prces. Table 5 shows the statstcs for the varables used n Model Estmaton of techncal effcences and Malmqust ndexes To measure effcency and productvty changes n electrcal dstrbuton companes, nput-orented models are used. In Table 6 the frm effcency, whch has been estmated 18 usng both models for 1996 and 2006, s presented. 19 Here, we can observe that relatve mean effcency n both models s hgh, and that there have been mprovements n the perod analyzed. Also, we can see 17 In Peru, statstcal nformaton on nterruptons and qualty of the dstrbuton networks has been avalable snce The programs used for the estmaton of effcency are Wn4P and P Verson In order to be bref, we only report average results. However, the annual results are avalable from the authors upon request. that t s manly the reformed frms that show mprovements n relatve effcency. Ths seems to ndcate that the 1993 reforms have had a postve effect upon the sector s effcency. The excepton was Electro Puno whose effcency has evolved negatvely. Ths s probably assocated wth the management problems that ths company has had snce ts dvesture from Electro Sureste. 20 Mostly, t s the same companes that are located on the relatve effcency fronter for both models; they are EdeCañete, Edelnor, Electro Centro, Electro Norte, Electro Noroeste and Luz del Sur. Three of these companes, Edelnor, Luz del Sur and EdeCañete are prvate companes; the rest were prvatzed and subsequently returned to the State. These latter frms, Electro Centro, Electro Noreoeste, Electro Norte and Hdrandna; supply four of the country s man ctes; ther respectve areas of actvty are Huancayo, whch s n the Andes, and on the northern Peruvan coast Chclayo, Pura and Trujllo, whch all form part of an agrcultural exportng area. These ctes have densely populated urban areas, and n some cases ndustry that must be suppled. As we wll see, these latter ponts postvely affect effcency. As we have stated prevously, the problem of techncal effcency for Electro Sureste s related to the dvesture of Electro Puno n 1998, whch created some ntal dsruptons; t was not untl the year 2000 that the geographcal concesson areas, and low and medum voltage customers were dstrbuted permanently. Conversely, the results for Electro Centro, Electro Noroeste, Electro Norte and Hdrandna seem to be drectly related to ther prvatzaton n 1998 and to ther return to the State at the end of Under prvate management, an nvestment programme was set up; t focused on replacng outdated machnery, the nfrastructure and enhancng mantenance operatons. 21 Also, aggressve energy-loss reducton programmes were mplemented, whch led to a reducton from 19.1% n 1998 to 10.8% n Fnally, personnel reducton programmes were also mplemented, savng 50% between 1998 and These facts are reflected n the evoluton of the techncal effcency for these companes durng the perod. Tables 7 and 8 show the total factor productvty changes by year and by company, respectvely. Table 7 shows that for both 20 Electro Puno was part of Electro Sureste, the power suppler for Cuzco and Puno up to the end of At ths tme the Government decded to splt Electro Sureste s electrcty system from the regonal department of Puno. Electro Sureste kept supplyng Cuzco, but Puno was suppled by a new company, Electro Puno, whch started operatng at the begnnng of Ths new frm, Electro Puno, had to face several dffcultes. Frst of all, they had problems wth admnsterng the medum-voltage sales, untl these ndustral customers were transferred n Secondly, they receved an electrcal system that had had lttle network mantenance nvestment, so t had hgher techncal and commercal losses than other networks n Electro Sureste. Lastly, they supply a low-ncome famly area wth a sgnfcant presence of low-voltage sem-rural or urban consumers. 21 Investments n the four enterprses durng the perod exceeded US$98 mllon.

9 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 5 Statstcs of the varables used n Model 2. Varable Sales (MWh) Customers (number) Workers (number) IMyE thousand of Soles n 1994 Losses (MWh) Mean 731, , ,523 88,696 Mnmum 4,609, , ,934, ,171 Maxmum 18,518 19, ,558 1,217 Standard devat. 1,166, , , ,714 IMyE ¼ real state, machnery and equpments n monetary value. Source: Energy Investment Supervsory Body of Peru, OSINERG. Own elaborated from Statstcal yearbooks. Table 6 Effcency of dstrbuton companes: Models 1 and 2. Frm Model 1 Model 2 TE CRS TE VRS ES TE CRS TE VRS ES Edecañete Edelnor Electro orente Electro puno a Electro sur este Electro sur medo Electro ucayal Electro centro Electro noroeste Electro norte Electro sur Hdrandna Luz del sur Seal Mean TE ¼ techncal effcency; CRS ¼ constant returns to scale; CVR ¼ varable returns to scale; ES ¼ scale effcency. a The avalable nformaton for Electro Puno starts from ts creaton n Table 7 Malmqust TFP ndex: annual average. Year Model 1 a Model 2 Effch Techch Pech Sech Tfpch Effch Techch Pech Sech Tfpch Annual average Perod average Effch ¼ effcency change; Techch ¼ techncal change; Pech ¼ pure effcency change; Sech ¼ scale effcency change; Tpch ¼ total factor productvty change (Malmqust ndex). a In model 1 the varatons are from a four year perod, so a four years average varaton of 15.2% equals a compound annual growth rate of 3.6%. models the frst years of reforms have been assocated wth total factor productvty mprovements, due to the techncal effcency, technologcal change and scale effects. The changes n productvty were bgger n the frst years of the perod analyzed. Snce 2001, except 2005, the mprovements n productvty have been smaller, and we can even see a slght declne n the evoluton of productvty for the years 2002 and Ths seems to ndcate that the reforms had a substantal effect at the begnnng of the perod, whch s normal and expected. The TFP annual average varaton s 3.6% for Model 1 and 4.3% for Model 2, whch are smlar results. Nevertheless, Model 2 guarantees a hgher degree of dscretonary power due to the

10 2258 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 8 Malmqust TFP ndex: annual results by company. Frm Model 2 larger quantty of data avalable and the fewer nputs; and from ths pont we wll now contnue usng only Model Its results n Table 7 ndcate that the man source of factor productvty change has been technologcal change, whch s a stuaton specfc to ths ndustry. Unlke telecommuncatons t has not faced technologcal changes that are external to the frms; hence t s feasble to consder technologcal change as takng place wthn the company. Also, technologcal change happens durng the frst stage, so t s more lkely to be lnked to the reform process. Table 8 shows that all companes have experenced ncreases n ther total factor productvty, wth the excepton of Electro Puno whose decrease s probably explaned by the aforementoned dvesture process from Electro Sur Este. The companes wth the most sgnfcant changes are Electro Centro, Hdrandna, Electro Orente, Electro Ucayal and Edelnor. All of them, except Edelnor, are regonal state owned companes owned that provde servces to mportant Peruvan ctes; ths mples that such dstrbuton networks have a predomnantly hgh urban densty. As prevously stated, the frst two were prvatzed n 1998 and returned to the Stated at the end of 2001; thus, the emprcal evdence shows that the temporary property transfer had postve effects on the total factor productvty. The decomposton of the Malmqust ndex shows that, at company level, productvty ncreases are explaned by mprovements n techncal effcency, as well as by postve technologcal change. Only three companes, Electro Puno, Electro Sureste and EdeCañete, show negatve results; the frst two cases are related to Electro Sureste s dvesture of Electro Puno and the subsequent process of adaptaton. Electro Puno s productvty and effcency problems could also be related to ts small sze. What the results do show s that for Electro Puno the level of pure techncal neffcency s hgher than s derve from scale effcency. Lastly, regardng the thrd company, EdeCañete, decomposton of the Malmqust ndex shows that the results reflect a problem of scale. Ths company can attan addtonal productvty ncrements f t adjusted ts sze Effcency drvers Effch Techch Pech Sech Tfpch Edecañete Edelnor Electro Orente Electro Puno (1) Electro sur este Electro sur medo Electro ucayal Electro centro Electro noroeste Electro norte Electro sur Hdrandna Luz del SUR Seal Effch ¼ effcency change; Techch ¼ techncal change; Pech ¼ pure effcency change; Sech ¼ scale effcency change; Tpch ¼ total factor productvty change (Malmqust ndex). One relevant aspect regardng effcency and productvty analyss s the dentfcaton of varables that explan techncal 22 The authors wll make the results for Model 1 avalable upon request. effcency n companes. Our results suggest certan dfferences n the effcency between reformed and unreformed frms. Reformed frms are those companes whch were prvatzed, regardless of whether they were later returned to state ownershp. We are nterested n analyzng whether the reform process, rather than the property regme, s the man reason behnd the effcency mprovement of the frms. In order to test the hypothess we use both, a non parametrc test, the Mann Whtney (MW) test, and a parametrc one, a censored regresson model (Tobt). The MW test was appled to prove the hypothess related to dscrete (bnary) varables. 23 We tested four hypotheszed drvers that may explan some dfferences n the frms effcency, these drvers were publc or prvate ownershp of the companes, locaton n mountans, locaton n jungle, and whether they are reformed or unreformed frms. The null hypothess s the lack of dfference n effcency reported by each type of frm. Table 9 presents the results of the test for techncal effcency under varable returns to scale (VRS) 24 for each year, and were taken from Model 2. From the MW test results, we can deduce that, dependng on the reform process, there s a dfference n effcency. The reformed frms are the most effcent, nsofar as the probablty s that ther techncal effcency s hgher than for the unreformed frms. Ths s shown n the frst row of Table 9. The last row shows the results when the drver s publcly and prvately owned, and these results are lower when the drver s reformed and unreformed frms. For ths reason we have concluded that the reform process, va prvatzaton, opened the door to new nvestment. Ths happened for at least long enough for frms to be able to adjust labour, modernze captal and so on. Fnally, Table 9 also shows that the geographcal locaton s not relevant when explanng the dfferences between frms, not even n the case of the Amazon jungle. The estmaton of a Tobt regresson parametrc model s complementary to the non parametrc MW test. It was ntated so as to explan the determnant factors n the techncal effcency of the dstrbuton companes under varable returns to scale. To that end and n accordance wth Pombo-Taborda (2006), a censored regresson model was estmated. ( y t ¼ 0; for others values of y t x0 tb þ t ; when 0oy t o1 Ths s called second stage analyss. In the frst stage effcency s estmated, and n the second stage effcency measurements are used as endogenously, wth the am to analyze whch varables explan these measurements. Smar and Wlson (2000, 2007) assert that ths type of non-lnear regressons faces endogenety problems, and that these estmators have a problem of bas; ths s because the varables consdered n the Tobt regresson tend to be correlated wth ts endogenous varable. There s also a problem related to the sample selecton of the frms consdered. These combned dffcultes generate a problem of consstency wth the estmator. Smar and Wlson (2007) suggest correctng consstency problems through the applcaton of two bootstrap procedures. Another alternatve would be to estmate the Tobt model wth nstrument varables. A second opton, whch s used n ths paper, s to consder the envronmental varables that are not correlated wth nput or output varables, but that are consdered n the effcency estmaton model. Furthermore, our data are not a 23 Ths test s only appled to dscrete (bnary) varables. 24 When dealng wth companes that are consdered natural monopoles, due the exstence of sub-addtvty n ts costs, t seems reasonable to assume that the electrcty dstrbuton companes operate under varable returns to scale (VRS).

11 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 9 Mann Whtney test. Model 2: varable return scale. Varable Statstcs Property (dprop) z Prob z Prob (ET prvate XET publc) Reform z Prob z Prob (ET reform XET No reform) Jungle z Prob z Prob (ET jungle XET No jungle) Mountans z Prob z Prob (ET mountans XET No mountans) random sample as we have nformaton about 14 frms that represents almost 98% of the total electrcty dstrbuton sales. The estmated model has the techncal effcency measurement obtaned though as one endogenous varable, and a seres of ndcators as dependent varables. Fve effcency explanatory varables were consdered. The frst one was nvestment per customer (I/N), whch s a way of representng the company s network densty, snce the more nvestment per customer, the less network densty. 25 Moreover, we sought to represent the busness structure through a second varable that measures the rate of low-voltage sales over medum voltage for each frm; LV/MV. Ths varable reflects the relevance of the attended area s ndustral actvty. 26 The thrd varable, Jungle, accounts for the fact that the dstrbuton frm located n the Amazon and s both the dstrbuton frm and ts own man generator, 27 and s typcal for dstrbuton networks that are solated from the natonal nterconnected grd. The fourth varable, Mountans, s one when a frm s located n the Andean mountans, manly. Fnally, a qualtatve varable was consdered to test the reform;.e. reformed versus unreformed frms). 28 Sales accordng to voltage and customers accordng to voltage were other pre-determned varables that were evaluated; however, they were excluded by omtted varable test, because they dd not mprove the varance of the model beng estmated. In Table 10 summarzes statstcs for the varables used n the Tobt model. We can see hgh varablty n the data, whch as already mentoned s good for an econometrc estmate. By calculatng ths censored regresson through panel data wth random effects 29 we obtan the results for the dfferent econometrc specfcatons that are ndcated n Table 11. The table 25 Less nvestment per customer s needed n hgher densty urban areas, compared to low-densty rural areas. Moreover, by usng two dscrete varables, mountans and jungle, we tred to represent the geographcal features such as orography, alttude, ran, temperature and so forth. 26 Another opton would have been to consder the varables that measure the partcpaton of the ndustral and commercal sectors n relaton to the GDP of each department. However, as there are companes that dstrbute to more than one department, and more than one company that dstrbutes to one department, ths opton was ruled out. 27 Accordng to the LCE regulatons, companes that carry out two or more actvtes n the electrcal sector (generaton, transmsson or dstrbuton) must keep separate accounts. The data used, ether nputs or outputs, only corresponds to the electrcal dstrbuton unts. 28 We also tested the property varable, but we get worse result than wth reform varable; ths s the same result we got wth MW test. 29 Stata 10.0 was used for the xttobt routne, wth the mnmum value equal to 0 and the maxmum value equal to 1, for the endogenous value. Table 10 Statstc of the Tobt model s varables. Model 2. Varable TE (VRS) LV/MV I/N Jungle Mountan DProp Reform Mean Mnmum Maxmum Standard devat TE ¼ techncal effcency; VRS ¼ varable returns to scale; I/N: nvestment per clent; LV/MV: low medum voltage sales rato; Jungle ¼ dummy varable equal to 1 f the dstrbuton company s located on Amazonas s jungle; Mountans ¼ dummy varable equal to 1 f the dstrbuton company s located on Andes s mountans; Reform ¼ dummy varable equal to 1 f the frm s prvate or was prvatzed between 1996 and 2006 and DProp ¼ dummy varable equal to 1 f the company s prvate. shows that for all the specfcatons we have consdered the qualtatve value always represents the reform regme, and the dstrbuton frms always show ndvdual relevance and a postve sgn. Ths mples that after beng reformed the dstrbuton frms had hgher techncal effcency. Ths s evdence of a postve correlaton between the reforms and the effcency n electrcal dstrbuton frms n Peru. The mountans, jungle and parameter ratos for medum- to low-voltage sales are not sgnfcant ndvdually, but a global sgnfcance test rejects the zero hypothess n the parameters of the specfcaton that were consdered. Ths s evdence of multcollnearty problems, and so, we must not omt ths varable. The parameters estmated show an nverse correlaton between these varables and effcency. Ths suggests that companes wth a hgh proporton of low-voltage network resdental customers are less effcent than companes wth a preponderance of medum-voltage ndustral and commercal users. The frms located n the jungle and mountans have lower effcences, due to deployment problems n the Andean mountans and n the Amazon ranforest. Lastly, other varable wth ndvdual relevance s nvestment per customer, whch has an nverse relatonshp. Ths means that an ncrease n nvestment per customer reduces the relatve effcency. Ths can be explaned because the hghest nvestment per customer s made n rural or urban zones a wth low-network densty, where t s not possble to take advantage of economes of densty. Ths occurs especally n networks outsde Lma, where there s electrcty coverage to just over 50% of the famles. Fnally, for those varables common to both the parametrc Tobt model and non parametrc MW tests, we can conclude that the emprc evdence ndcates that there s a postve and

12 2260 R. Pérez-Reyes, B. Tovar / Energy Polcy 37 (2009) Table 11 Tobt model results. Varable Specfcaton (1) (2) (3) (4) Constant a (10.47) a (11.22) a (12.82) a (16.24) LV/MV (1.34) (1.43) (1.41) I/N a ( 2.03) a ( 2.42) a ( 2.41) a ( 2.18) Jungle ( 1.17) Mountans ( 0.80) ( 0.26) Reform a (5.86) a (6.33) a (6.35) a (6.28) s m s e r w I/N: nvestment per clent; LV/MV: low medum voltage sales rato; Jungle ¼ dummy varable equal to 1 f the dstrbuton company s located on Amazonas s jungle; Mountans ¼ dummy varable equal to 1 f the dstrbuton company s located on Andes s mountans; Reform ¼ dummy varable equal to 1 f the frm s prvate or was prvatzed between 1996 and a Confdence level over 95%. The fgures nsde the parenthess represent the statstcal z n absolute value. statstcally sgnfcant correlaton between the reformed frms and effcency. 30 There s a negatve correlaton between productve effcency and the locaton of the frms, but ths correlaton s not statstcally sgnfcant. 6. Conclusons The purpose of ths research paper s to estmate effcency and productvty changes n the 14 Peruvan electrcty dstrbuton companes durng the perod pror to the 1993 reform, and to verfy f the changes n such ndcators s explaned by the reform process carred out snce To that end, two alternatve models, only dfferenced by the way they measure the captal, were estmated. Effcency estmates, obtaned wth, as well as the total factor productvty change obtaned usng the Malmqust ndex, show that mprovements n effcency and productvty were hgher n the frst years followng the mplementatons of the reforms wthn the sector. Techncal effcency estmates usng show that the companes on the fronters durng the whole perod are Edelnor, Luz del Sur, EdeCañete. The regonal companes n northern and central Peru, whch were prvatzed and then returned to the State, show sgnfcant and postve effcency changes, even after they were returned. We have concluded that the reform process, through the prvatzaton, has brought about an mprovement n the allocaton of resources;.e. the reformed frms attan greater effcency, even though some frms have subsequently returned to state ownershp. Wth regard to the total factor productvty that the Malmqust ndex reports for the perod, the annual average s 4.3%, the vast majorty, 4.0%, s explaned by technologcal changes. The results show that scale effcency changes were mnmal or rrelevant durng the perod analyzed. Gven the low technologcal dynamcs of ths ndustry, t s reasonable to assume that productvty gans acheved through 30 Ths emprcal evdence s not an evaluaton of the postve aspects of the property regme per se nor does t evaluate any causal relatonshp. It looks at the characterstcs of the nsttutonal envronment under whch the prvate and State companes operate n Peru. Wthn the corporate governance framework, prvate companes must account to ther mnorty shareholders for ther actons, although they do not face nvestment restrctons when hrng, procurng servces or consultances. However, publc dstrbuton companes have to endure everncreasng admnstratve restrctons n order to nvest, complcated process of procurement of nputs and the ex-ante audtng process of the Government Offces. technologcal change are explaned by the reform process tself, whch mples there was an exogenous envronment that was more favourable for the development of both state and prvate companes. Technologcal change has been postve for all the companes except Puno. The specfc problems that ths company faced, whch have already been mentoned, were the Electro Sur Este spn-off, management dffcultes, a low-densty concesson area, low-ncome customers and networks wth hgh energy losses. Techncal effcency has been a lot more modest and favourable for all companes, wth the excepton of Electro Puno, Electro Sur Este, Electro Sur and EdeCañete. Wth the frst two ths s probably due to ther spn-off n 1999, whle the latter two had a scaleeffcency problem. The results of the Mann Whtney non-parametrc test and the censored regresson Tobt model show that the effcency of the analyzed companes are drectly correlated to ther reform regme, and nversely correlated to nvestment per customer. The reformed versus unreformed contrast carred out n ths paper ams to emprcally valdate the nfluence of the dfferent prvate and publc nsttutonal envronments on effcency and productvty n Peru; and ths s a consequence of the Peruvan State-s decson to not allow management autonomy n ther state owned companes. The opposte happened n Colomba, wth Empresas Públcas de Medellín (EPM), an electrcty dstrbuton company that belongs to the muncpalty of Medellín. EPM s held n hgh regard n the regon, due to ts effcency and ts nvestment capacty n the regon, and for ts other actvtes wthn the power sector. EPM s the man shareholder n ISA, whch owns the transmsson networks n Colomba, Ecuador, Peru and Central Amerca; n Brazl, ISA recently bought Sao Paulo s transport network. Ths s a good example of the separaton between property and corporate governance. Wth regard to the other varables ncluded n the dfferent Tobt specfcatons analyzed, the results show that nvestment per customer s negatvely correlated wth techncal effcency; ths mples that those companes that nvest more per customer are less effcent, due to network densty economes. Of the other three varables, none show any ndvdual relevance; these varables are the rate of low- over medum-voltage sales for each company, mountan locaton and a dummy f the frm s located n the jungle. In general terms, our emprcal evdence shows the need to ntroduce an ncentve mechansm nto the state electrcty dstrbuton companes. Ths would then allow them to act as

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