(HARA
Eiji, PPPC President)
n
the ordinary Diet session, a bill entailing full opening of entry into power
sales has been submitted as the second round bill after the first power system
reform bill enacted in the extraordinary session last year.
If
the proposal bill is to be enacted, all the power sales industry including toward
households, in addition to the large-consumers that has already been liberalized,
will be opened in a full scale. Given the circumstance, while various sectors
such as telecommunication pay much attention, there remain challenges to be
tackled.
Here
is a summary of the opinion that the author stated in the Lower House’s Economy
and Industry Committee as a reference on May 7.
1.
Power
Reform and Third Arrow of Abenomics (growth strategy)
Views
of domestic and international critics toward Abenomics are, unfortunately, not
always sympathetic. Especially, there are quite a few concerns such as “what’s
going on with the third arrow (growth strategy)?” or “it’s not going to be
launched, is it?”
Under
such circumstance, it is the strong commitment of Prime Minister Abe,
especially the policy line and decisiveness shown in his speech at Davos Convention
in January, that has kept the world expectations.
In
the speech, Prime Minister Abe stated the following six policies.
(1)
Reform
of bedrock regulations
(2)
Promotion
of TPP and EPA
(3)
Investment
to growth industry through GPIF reform
(4)
Corporate
tax reform
(5)
Promotion
of women, labor market reform
(6)
Reform
of corporate governance
In
growth strategy, it is important to make an easy environment for private
business and to get rid of redundant restrictions, so the regulatory reform stands
as a main challenge. From that perspective, it seemed reasonable that Abe
stated the reform of bedrock regulations as the first pillar. In that first
pillar, Prime Minister Abe spoke of the power system reform as the first theme.
--Excerpts
of Prime Minister Abe’s Speech at World Economic Forum 2014
May I tell you, ladies and gentlemen, that late last year, we decided to go
on major reforms.
I have broken through the notion that certain reforms could never be
carried out.
We will completely liberalize Japan's electricity market. By the time the
Olympians compete in Tokyo in 2020, Japan's electricity market will also be
completely competitive, for both power generation and retail, with power
generation split off from power transmission.
In Japan, people have long said that such a thing is just impossible.
(abridged)
I have maintained that I am willing to act
like a drill bit; strong enough to break through the solid rock of vested
interests.
Soon, our deregulation package will be set in motion. Designated areas, on my
own watch, will cut through red tape.
There, over the next two years, no vested interests will remain immune from
my drill.
The world perceived the speech with great expectations
that Abe loudly announced to break through the vested interests within the
coming two years at least in the National Strategic Special Zones.
Yet, the first precondition for Abe’s bow is the ongoing
power system reform. If, possibly, Abe’s vow that “Japan’s power industry will
have become a completely competitive market in 2020” falls short of reality, it
will largely lose the world’s expectations toward not only the power industry
in Japan but Abenomics entirely.
2.
Upcoming challenges of the bill
Reasons and needs for power system reform can simply be
explained as the following.
l Because
of the industrial nature having economy of scale, the power industries were
either publicly-managed or monopolized with regulations in any countries of the
world at old times.
l But
the economy of scale was lost except in the power distribution sector due to
technological innovations, and conventional regulations lost their
rationalities.
l Nonetheless,
the regulations which already lost rationalities have been maintained in Japan,
and now Japan has a few-steps-later start toward power system reforms than in
many other countries.
Such a feature can typically be observed in many other industrial
sectors dubbed solid rock vested interests. The policy of opening entry into
power sales is certainly a step toward reform on such structures and there is
no doubt on that direction.
Still, there are three points to be taken into
consideration.
(1) Will
the liberalization really create competition?
First, it is important to create competitions in reality
by the liberalization.
As many critics have pointed out, although the
liberalization of power sales targeted at large consumers (such as factories) was
legislatively accomplished in the past, its effect on the actual entries was
unfortunately rather limited. Even a government panel on power system reform
pointed that “there is no actual change in the industrial structure that is de
facto monopoly.” The reform must not end in such consequences.
It is necessary that business operators will actually emerge
and create active competitions. Specifically, by getting rid of the
conventional vertically-consistent power supply structural restrictions, there
arise possibilities of cross-industrial entries and industrial realignment over
such sectors as “electricity” or “gas.”
Furthermore, there are possibilities of creation of new
services and infrastructure companies by merging with telecommunication or
water companies, crossing the border of “energy” industry. For example, while
Veoria in France is known as a water company, it actually operates energy and
wastes-disposal services and serves as a comprehensive infrastructure company.
As such, there are possibilities that variety of new
services and companies will be given birth through cross-industrial operations
of sharable facilities and technologies, etc.
This time’s power liberalization should serve as a
kick-off toward evolution and realignment of the whole infrastructure
industries, and must do so to ensure effectiveness.
In the meantime, in advancing cross-sectorial
realignments, there arise other policy challenges than the power reform. For
example, reforms on gas supply system and other heat distribution supply system
must be tackled simultaneously. Also, discussions on the opening of entry into
publicly-managed infrastructure services such as water have been intensively
going on since this February in the subcommittee of the Industrial
Competitiveness Council. Private entry into the field has been enabled through
so-called “concession” method has been enabled due to legislation of the new
PFI Act in 2011, but there still remain operational difficulties.
While the issues tend to be regarded as different matters
because the power has historically been operated “privately” and the water has coincidentally
been operated “publicly,” both have in common the challenge of “introduction of
competition into infrastructure sectors.”
By comprehensively tackling with such challenge of “introduction
of competition into infrastructure sectors,” we may hope promotion of bilateral
cross-sectorial entries and competition, creation of new comprehensive
infrastructure business, and exports and global expansion of the new
infrastructure system in the future.
However, pushing forward reforms relating with multiple
industrial sectors altogether may accompany difficulties. In that case, there
is an alternative to utilize such a framework as the National Strategic Special
Zones as regional experiments.
(2) Transition
to regulatory body possessing high independency and expertise
Second, in order to create competition in reality, it is
important to set functions of a regulatory body to monitor whether the
competition is undertaken properly or a healthy competition is impeded.
On this point, the supplementary provision of the revised
bill enacted in the last autumn stated to “shift to a new administrative organ having
high degree of independency and expertise in eye of 2015.” Discussion and
preparation to that goal must be started immediately.
In that process, from the perspective of “independency,”
nothing is more important than excluding influences of the existing power
companies that have monopolized the industry. To that aim, it is inevitable to
change the relationship of the politicians and the Ministry of Economy, Trade and
Industry with the power companies that have often been criticized as cozy.
A reasonable solution would be application of the
so-called 3rd clause administrative commission.
Also, from the perspective of “expertise,” it is
important to design a system to secure and promote able persons by referring to
past experiences like monetary regulations.
Further, if the reform is to stimulate advancement of “introduction
of competition into infrastructure sectors” in general, a new regulatory body
will likely supervise not only the power but other industries widely.
Discussions should be taken in eye of such possibilities.
(3) To
prevent the liberalization process from suspending or moving adversely
Finally, the process toward liberalization must not be
suspended or moved backward.
First, the shelved challenges of separation of power
generation and distribution and abolishment of fee regulation should be
advanced with effective and elaborated measures.
Also, there will always be the possibility of arising
movements to suspend or move adverse the liberalization process with
unjustifiable reasons like “the electricity bill has been increased temporarily,”
“there were blackouts” or “there were changes in the situation regarding the
nuclear power plants.” Such oppositions must be prevented.
For reference, let us give a few words about the past
experiences in other fields.
First is the air liberalization.
In the air industry, at old times, there were measures to
avoid competition such as that business operators lived separately in domestic
and international flights and “one route, one company” rule. Deregulation has
been gradually undertaken since 1980s and fee regulation was abolished.
Articles written at an early stage of deregulation process
said “after the deregulation the fees rather increased.” But looking back from
the present, the deregulation created fruits such as various fee menus and
emergence of LCC. It is not to say that everything is perfectly going on and
there are always challenges to be tackled, but at least at the present time,
nobody should be thinking that the past measures to avoid competition should
have been maintained.
Second example is the taxi regulation.
In this industry, deregulation has been advanced from
1990s to early 2000s, and later, there emerged discussions that “excessive
deregulation” worsened working environment of drivers and caused accidents. It
is now again in the direction of demand-supply adjustment and strict fee
regulation.
While we’ll refrain from discussing this issue in detail,
the issues of working environment and cause of accidents should be handled in
the context of labor management and safety regulation, and it is illogical to
restore the old demand-supply adjustment and fee regulation. Currently ongoing
discussions are moving toward reregulation based on a false understanding of “excessive
deregulation” at the stage when the effects of deregulation are yet to be seen
fully (i.e., fees are yet to be decreased and the state of excessive supplies
have not been changed).
A lesson from the two cases is that consequences of
liberalization process do not always appear immediately, and there always
emerge movements to suspend or move the process adversely for whatever reasons.
This is what we must be careful about.
One preventive measure is to separate the process from
the government ministries having jurisdiction over the industry, and to create
an authority to monitor and advise the reform process. There were examples of
third-party organization under minister-in-charge aside from the ministries
like Council on Promotion Privatization of Japan Road Authority or Council on
Privatization of Japan Postal Services.
Listening to this kind of discussions, officials of the
METI may think that “we’re different from the ministries opposing to reforms;
we’re the promoters of liberalization.” And it is true that they are making
efforts. But as long as there are possibilities that some adverse movements to unsettle
the liberalization process will arise, it is important keep in mind the past
wisdom to separate the team into two sides within the government that has been
used to push forward the past, highly difficult reform processes.
In any case, it is highly expected that the power
liberalization will advance firmly and steadily as top batter of the third
arrow.
