APEC-PECC Workshop to Improve Investor Confidence 
& Capital Mobilization in APEC’s Energy Sector
 April 19-20, 1999  Oakland, California, USA
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Priority Principles for Implementation

APEC IPP Best Practice Principles

    I. Policy Principle Priority
       
    We have identified the following IPP Best Practice Principles for Implementation (numbers in parentheses refer to the original numbering in the APEC EWG Manual of IPP Best Practice Principles)
       
    Considered of Primary Importance:
       
    (1) Energy sector policies formulated to create a stable framework for power sector development and to facilitate competition through options such as power sector reform and restructuring, and the separation of generation and transmission functions.
       
      Best practice features include:
    • Established legislative framework
    • Clear energy sector policies and framework for policy-making 
    • Separation between regulator and utility 
    • Separation between generation and natural monopoly transmission functions 
    • Competitive market in electricity generation and energy supply 
    • Complementary development of the transmission grid, including through private investment 
    • Environmental and other public policy objectives incorporated and made transparent to electricity sector participants 

      •  
    (2) Reforms which lead to electricity utilities functioning as commercially viable entities under a regulatory framework which ensures fair treatment between the utility and private sector participants.
       
      Best practice features include:
    • A commercial environment with performance targets set for the publicly owned utilities, commercial tariff policies in place and a competitive and stable market in fuel supply 
    • Laws enabling foreign ownership and control of IPPs 
    (3) Simplification of the approvals process for IPP projects and the underlying regulatory framework in order to reduce uncertainties and delays - this might involve handling the process through a coordinating agency.
       
      Best practice features include:
    • Consistent central and provincial government regulations and approval processes 
    • Clear, published and transparent approvals process 
    • Independent regulation

      •  
    (12) Clear regulatory, taxation and foreign exchange regimes established to facilitate private investment in the power sector.
       
      Best practice features include:
    • Clear mechanisms for currency convertibility and remittances 
    • Accounting regime in place and financial information on power purchaser and other parties available 

      •  
    Considered of Secondary Importance Were:
       
    (10) Power Purchase Agreements (PPAs) incorporating mechanisms for allowing transition to competitive electricity markets. These mechanisms need to protect the financial integrity and viability of the project, particularly once financial close is achieved.
       
      Best practice features include:
    • PPA tariff structure that promotes competition among generators (both IPPs and utilities) 

      •  
    (14) Improvement of credit standing of power purchasers to underpin the bankability of IPPs.
       
      Best practice features include:
    • Project structure providing determined income stream 
    • Participation of developers with track record 
    • Availability of support from international lending agencies 

      •  
    (15) Implementation of policies to encourage the development of domestic capital markets and institutions and diversify the sources of domestic capital - for example, pensions and insurance funds - available for equity investment in electricity projects.
       
    II. Action Items Agreed
       
    We recommend that:

    1. Comparative studies, including an audit of existing regulatory framework of APEC member economies be carried out.  This is essential when regulatory frameworks are in transition.  It also serves to share experience among economies many of which are already leading global energy reform.

    2. Identify existing alternative model for Electricity Supply Industry structural reform

    3. Undertake training and communication programs on the benefits of structural reform.  Here we recommend the adoption of Hagler Bailly priorities for early action with particular reference to capacity building and institutional strengthening of Regulators.

    4. Ask Energy Ministers to recommit to IPP Principle Number 1, of structural and regulatory reform, by recommending that APEC Leaders sign a declaration in New Zealand committing to the process of electricity supply industry reform, namely:

    • Separation of transmission and generation with options depending on the circumstances of individual of Member Economies;
    • Independence of regulatory authorities which aids transparency and fairness; and
    • Commitment to a timetable, nominated by each Member Economy to implement Electricity Supply Industry Reform.


    III. Strategies for Implementation

       
    It is essential to business that the IPP Best Practice Policy principles, work programs and Action items be implemented and that there is independence and transparency of how successfully or otherwise they are implemented.

    We respectfully suggest that Energy Ministers:

    1. Form an independent committee comprised of Regulators, Business and Officials to serve as score keepers.  This implementation committee should assess the development and implementation of electricity supply industry reform against the agreed IPP Best Practice Principles, noting the priority given to each above.

    2. Identify initiatives specific to the Energy Sector for nomination within their individual Action Plans.

    3. Adopt published benchmarks for the purposes of scoring the progress of Electricity Supply Industry Reform, using the year of publication of the IPP Best Practice Principles, 1997 as a base.

    4. Nominate three projects which serve as demonstrations of the successful implementation of the Agreed IPP Best Practice Principles.

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