Policy Developments for Private Investment in the Indian Power Sector
The economic crisis faced by India in 1990-91 provided an
opportunity for unshackling the economy by de-licensing a number of
sectors. This led to opening up of infrastructure sectors like power
and telecommunication for enhanced private participation. The
earliest phase of power sector reform, which began in the early 90s
was aimed at improving the policy climate for private investment.
Such policy initiatives generated overwhelming initial interest from
local as well as international private investors. Insolvency of the sole
buyers, the SEBs, and delays in project development frustrated efforts
of private investors.
Regulatory reforms have led to setting up independent
regulatory commissions. State Electricity Regulatory Commissions
(SERCs) are in place in 24 states and the Central Electricity
Regulatory Commission has been set up at the federal level. The
Electricity Act 2003 has deepened the process of reform by enabling
competition in bulk electricity supply, through license-free thermal
generation and open access in transmission. It aims to do away with
regulatory uncertainty through introduction of multi-year tariff
principles. An amendment to the Act stipulates open access to all
customers requiring maximum power above 1 MW by 27th January
2009. This opens a market for direct sale by IPPs bypassing the
distribution licensees. A cross-subsidy surcharge imposed on such
sales provides some comfort to state utilities for a few years only as
this surcharge will be phased out.
The Indian power sector has not been able to attract substantial
private investment due to an inadequate legal and commercial
framework, and delays in obtaining regulatory approvals (IEA, 2003).
The private sector, including IPPs, currently owns around 10% of the
total generating capacity in the country. Apart from pre-existing
private licensees in urban areas, distribution zones in Orissa and
Delhi have been privatized. Foreign investment remains low. Actual
FDI in the Indian power sector between 2000-05 is recorded to be
Rs.49416.2 million (approx. USD 1.1 billion), accounting for 5.77%
of total FDI inflows to the country.
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The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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