Conclusions

The power sector has remained under public monopoly and riddled with inefficiency in most developing countries. Increasing demand and inadequate public investment has prompted enhanced private investment. The initial phase of power sector reform in India invited private investors in an environment characterized by policy uncertainty and lack of independent regulatory institutions. Latin American countries provided more policy clarity and predictable regulation. These were able to attract significant private investment even in the absence of sovereign guarantees.

Response of private investors to the initial phase of policy initiatives in India has not been encouraging and capacity shortages loom large. The Electricity Act 2003 and a number of regulatory initiatives hold promise for enhanced private participation in the sector. Lack of a roadmap to the process of reform raises risk perceptions for investors and lenders alike. Experience in Argentina and Brazil suggest that investors' risk perception is best addressed through a roadmap to the process of reform and policy certainty. Independence of regulatory institutions provide credibility to the regulatory process which provides comfort to investors while protecting consumers' interest. An approach for encouraging private investment in the power sector should focus on reducing risk itself rather than allocating it (Malhotra, 1997). This would increase the number of bankable projects, which are rather lacking in developing countries like India.

Policy reforms undertaken in India, especially the recent enactment of the Electricity Act 2003, provide a guiding tool for reforming developing countries. However, the delay in undertaking such initiatives from opening up of the sector for private investment should be minimised to get maximum leverage from the reforms program. Independent regulation complements private investment in generation and, more specifically, in distribution business. Developing countries embarking on policy reforms should chalk out a reform road map as per the prevailing conditions and introduce independent regulation for inducing greater private investment in the power sector while protecting consumer interest.

Comment(s)

There are [0] comment(s) for this entry. Post a comment.