Introduction

Long-run economic growth is influenced by availability of infrastructure services, including electricity. Power sector has long been under public ownership on the basis of natural monopoly and public good arguments. However, inadequate public investment and increasing demand has necessitated private participation in developing countries. IEA (2003) projects the cumulative power sector investment requirement for 2000-30 to top USD 9.84 trillion, more than half (USD 5.1 trillion) of which would be required for developing countries.

Governments are increasingly facing competing resource requirements from social sectors like health and primary education. Given the limited budgetary support due to enhanced fiscal discipline, enhanced private sector participation is inevitable. Inefficiency, financial stress, and poor and inadequate provision of electricity under public ownership also lends support for enhanced private participation in the sector. India initiated power sector reform in the early 90s to allow private and foreign investment in the sector. However, investment from private investors has not been so encouraging. National Electricity Plan of India aims to achieve access to electricity by all households by 2010 and to meet all shortages by 2012. This would require an investment of Rs.9000 billion (approximately USD 200 billion) at 2002-03 prices to finance generation, transmission, distribution and rural electrification projects (GOI, 2005). IEA (2003) estimates the total investment requirement in the Indian power sector for the period 2000-30 to be USD 665 billion. Given the foreseeable economic growth in the years to come, such investment requirements could not be an underestimate. Investment with private participation in the electricity sector in developing countries is estimated to be only USD 12.1 billion in 2004. Against the backdrop of peak investment of USD 43.3 billion (in 1997) in the electricity sector in developing countries (Izaguirre, 2005), investment requirements in the Indian power sector alone, pose a serious challenge for policy makers.

The scale of private investment in the Indian power sector is not as encouraging as in the case of some reforming countries in Latin America. Argentina and Brazil were recipients of a significant proportion of private investment in the power sector in developing countries. Various developing countries have undertaken reforms of varying scope, pace and sequence. There is also increasing evidence of effectiveness of independent regulatory institutions in promoting private and foreign investment in the infrastructure sector, including the electricity sector (Sirtaine et al., 2005; Stern and Cubbin, 2005; Sader, 1999). Politicization of the sector, especially in terms of tariffs, has not provided adequate returns to investors and has resulted in a decline in investment in private infrastructure projects in developing countries (World Bank, 2005).

This paper undertakes a comparative analysis of the policy and regulatory environment for private investment in the Indian power sector with that in Argentina, Brazil, People's Republic of China (PRC), Mexico and Thailand to understand the impact of scope, pace and sequencing of the reforms process on private investment. This study is timely as a number of developing countries in Asia and Africa have initiated or are in the process of initiating reforms in the power sector. This would also help design policy and regulatory reform in developing countries.

The next section provides an overview of private investment in the power sector in developing countries. Sections 3 and 4 respectively briefly review the power sector scenario in India, and the policy reforms and regulatory developments since the early 90s. Section 5 provides a review of literature on factors influencing private investment in developing countries. A comparative analysis of the policy and regulatory environment for private investment in the power sector across the selected countries is presented in Section 6.

Section 7 concludes the paper with key findings and recommendations.

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