Liberalisation and divestiture in the UK energy sector

<p>Over the past 10 years, the government has privatised two energy industries - gas and electricity - and is presently selling British Coal. Vickers and Yarrow (1988) point out that the privatisation of utilities has two components, for the sale of assets to the private sector may be accompanied by changes in industrial structure. It is possible to sell assets without liberalisation, just as it would be possible to liberalise a market without asset transfers. The three energy industries were privatised with very different structures and competitive environments. This paper examines the structures chosen in the light of the benefits to government, private producers and consumers, focusing on whether restructuring and liberalisation should occur before or after privatisation. A similar choice exists after flotation between divestiture and restructuring of the industry itself and changing the external competitive or regulatory environment. Within energy, we show that the structure chosen for one industry affects the options available for another, because of the complex interactions within the sector. </p>