Benefits of competition on natural gas transportation: the experience of Chile

Abstract

For the introduction of natural gas to Chile, different institutional alternatives were evaluated that sought various objectives: to ensure a sufficient and environmentally consistent supply of energy for an economy open to the outside, with a high level of competition; promote a strong participation of the private sector as the main driver of development, create long-term conditions to sustain economic growth; introduce conditions that allow the development of competitive and clean markets; set and maintain precise and stable rules; and promote free prices. The above has been achieved, despite the fact that the authority at the time sought by various means to intervene, through the participation of the state company ENAP. As a competitor of the private consortiums, in addition to proposing in 1994 a bill for the sector that implied an important intervention and state regulation in the same Now well. The existence of an innovative legal framework (Law 18856) and the willingness of private investors to invest under that framework avoided State participation in the sector and prevented some inadequate regulatory changes.

This is how an institutional strategy for the operation of the industry emerged that left the government out of the discussion and freed the industry from political pressure, which privileged competition between private parties and minimized direct regulation by the State. This strategy is based on the idea that an adequate institutional framework allows for a competitive sector, avoiding the disruption caused by the political process when behind a design of a regulatory framework there is strong State intervention. The strategy followed by Chile in the field of the gas industry reflects that there are possibilities to limit the action of the State for the efficient operation of natural gas transportation operations. Although the State can not escape from the obligation to establish minimum rules for the operation of the market, the Chilean experience shows clearly that the private sector is capable of r front by itself to the institutional demands that arise as a result of the economic characteristics of the sector.

However, the Chilean experience is still very recent to make a deeper assessment of what this strategy has been to privilege private action in the emergence of an institutional framework for the sector. However, the competition generated in the processes of public offer, that ended up giving economic viability to the projects that managed to finalize long term contracts in the best conditions for the clients, it is an indicator that. under the current conditions, the development of a competitive transport sector has been achieved while minimizing the regulatory apparatus of the State. It remains to be seen how the sector evolves in the future, and if the increase in the size of the markets generates the necessary conditions so that new local operators can enter, and public action in terms of price regulation can be kept out of this way.