Private Participation in the Power Sector in Developing Countries

The decade of 1990s witnessed fervent activity in terms of private investment in the power sector in developing countries. Reforms in the power sector, and unshackling of the sector from public ownership and investment control, saw annual private investment reaching a peak of USD 43.3 billion in 1997 (Figure 1 [ PDF 33.7KB | 1 pages ]). Latin American and East Asian countries were prime destinations for investment (Figure 2 [ PDF 33.4KB | 1 pages ]). The East Asian financial crisis in 1997 had put a number of IPPs at risk, primarily in Indonesia. Subsequently, the financial crisis in Latin America – an erstwhile abode for private investors – further dampened investors' interest in the sector.

The slow down of private and foreign investment in developing countries has been a cause of concern for policy makers as well as for multilateral institutions. Crisis in California's electricity sector dampened drive for reform in the power sector. Some developing countries, like India, are regaining momentum to induce private investment in the power sector. As the shadow of the East Asian crisis is fading, India is facing increasing policy competition to remain an attractive destination for foreign investment.

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