Private Rural Power : Network Expansion Using an Output-Based Scheme in Guatemala

In 1998 the government of Guatemala privatized the two companies responsible for distributing electricity in rural areas. The new owner, Union Fenosa, was obliged to implement an ambitious five-year rural electrification program. The goal: to increase the share of households with an electricity connection from 64 percent to 90 percent by 2004. Under this output-based scheme the two companies are paid US$650 for each eligible residential connection made. If no connections are made, no payment is made. So far the scheme has performed well-completing 122,000 new rural connections between May 1999 and May 2002-and is on track for the 2004 targets.