Most government-owned utilities indeveloping countries perform poorly when judged as providersof electricity, in part because politicians and officialsuse their power, not to encourage the utilities to increasesales, improve the collection of bills, and cut costs, butto transfer resources to politically influential groups and,sometimes, extract bribes. To improve the performance ofgovernment-owned electricity utilities as electricityutilities, rules and practices must be changed in a way thatreduces politicians' willingness or ability to use theutilities for political purposes and subjects the utilitiesto new sources of pressure to perform well. This paperconsiders ways in which a government might seek to achievethis goal without privatizing. It focuses on changes incorporate governance-that is, changes in the rules thatstructure the relationship between the company and thegovernment as its owner. It concludes that governmentsshould be cautious about the prospects for improvementwithout privatization-since, among other things, creating atruly arms-length relationship between the government andthe utility will always be difficult as long as thegovernment remains the utility's owner-but thatimprovements in corporate governance are still worth pursuing.
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