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Tight regulation needed for unbundling, says study

A T Kearney research note considers efficiency benefits

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A T Kearney recommends a step-by-step unbundling approach.
A T Kearney recommends a step-by-step unbundling approach.

Recent research claims that unbundling can help increase efficiency, although expectations of the practice tend to be unrealistically high.

The report, by consultant A T Kearney, says that unbundling is set to be a key facilitator for competition through discriminatory-free network access for third parties, thus leading to efficiency gains.

A T Kearney says that electricity in the MENA region tends to be subsidised by local governments at 30-50%, although governments are now looking to lower these heavy costs. Unbundling is seen as one way of improving efficiencies without tariffs becoming so unrealistic that they might threaten the sustainability of the power grid.

“The defining element of an ownership unbundling model is that the network of electricity transmission is operated and owned by one independent company, which clarifies the incentives, responsibilities and liabilities for the network, but unbundling does not necessarily mean lower tariffs”, said Dirk Buchta, managing director of A.T. Kearney Middle East.

However, the report also mentioned that lessons should be learnt from the European experience, where tough regulation and fierce competition have hampered growth.

“For MENA countries, we recommend a step by step unbundling process, because of the strong growth of electricity demand of 3 to 6 percent annually,” said Goetz Wehberg, leader of A T Kearney’s Utilities Practice in the Middle East.

“Regulators in MENA have to make sure that clear responsibilities for balancing supply and demand are maintained within the incumbent companies, despite of unbundling.”

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