The salient features of the
Electricity Bill are as follows:
Central Government to prepare a national Electricity Policy in
construction with State Government.
Thrust to complete the rural electrification and provide for
management of rural distribution by Panchayats, cooperative
Societies, Non-Government Organization, Franchises etc.
Generation, being delicensed and
captive generation being freely permitted. Hydro projects would,
however, need clearance from the Central Electricity Authority.
Distribution licensees would be
free to undertake generation and generating companies would be free
to take up distribution licenses.
The state Electricity Regulatory
commission is mandatory requirement.
|Private Participation in Power
Over a past decade a growing number of
developing countries have opened their electricity
industries to the private sector. The new wave of policy
reforms designed to promote private participation has been
driven by three main forces: the need to expand capacity or
increase the reliability of systems, or both; public sector
budget constraints; and the positive results of the early
experiments with private participation in Chile and the UK.
Between 1990 and 1997, 62 developing countries introduced
private participation in the electricity sector to varying
degrees- ranging from management contracts for the
state-owned utility in Mali to the privatization of most
sector operations in Argentina, Bolivia, and Hungary.
Before 1990 private participation in
electricity in developing countries was limited to Chile
(which introduced comprehensive reforms in the 1980s to
create a competitive private market) and a few isolated
experiences in other countries. The investments in
electricity projects with private participation amounted to
$3.6 billion between 1984 and 1989.
Private participation has grown
substantially since 1990, with electricity becoming one of
the leading infrastructure sectors in attracting private
investments. Between 1990 and 1997, the private sector took
on the management, operations, rehabilitation, and
construction risk of 534 projects, with total investments of
$131 billion. These projects have been implemented under
schemes ranging from management contracts with or without
investment commitments to divestitures to greenfield
facilities under build-operate-transfer (BOT), or similar
arrangements. This note provides an overview of the patterns
and trends in these projects.
The PPI Project Database shows strong,
steady growth in private participation in electricity,
whether measured in number of countries, number of
projects, or value of investments. It also shows four main
· A regional and national
concentration of projects.
· A higher concentration of investments in generation in
than in distribution and transmission.
· A dominance of green field projects and
divestitures compared with management and operations contracts.
· Different regional approaches to private participation.
A regional breakdown of private electricity
projects shows a concentration of projects in East Asia and the
Pacific and Latin America and the Caribbean. This trend has also been
noticeable in such sectors as water and transport. East Asian
countries awarded 165 contracts, representing a total investment of
about $50 billion, between 1990 and 1997. In Latin America and the
Caribbean 169 private electricity projects, representing a total
investment of $45 billion, reached financial closure during the same
Although private participation in electricity has been spreading
rapidly among developing countries, a few countries still capture
most of the investment. The top 10 countries ranked by investments
in projects with private participation accounted for 58 percent of
the projects and almost 76 percent of the total investment in
1990-97. Two things should be noted in relation to the list of top
10 countries by investment.First, China has taken a more cautions
approach to private participation than any other top 10 country. Most
of its project have been developed as joint ventures between private
sponsors and state-owned enterprises, with a fully private consortium
so far. In addition, the private stakes in Chinese projects have been
inversely proportional to the size of the projects. Relatively big
electricity projects have been developed consortia in which the
private sponsors own less than 50 percent of the equity, while in
smaller projects the private stake may be upto 70 or 80 percent.
Public-private joint ventures of this kind overstate private
involvement in electricity projects in China compared with other
countries, where private electricity projects tend to be wholly or
substantially privately owned. Second, although Chile has had
significant investments in private electricity projects, it is not
included in the list of top 10 because much of the investment occurred
in the 1980s.
The list of top 10 countries changes
substantially when the total investment in private electricity
projects is expressed in per captia terms. Relatively small countries,
such as Belize, Jamaica, and the Lao People's Democratic Republic,
appear more active in private participation in electricity by this
measure. Lao PDR is an unusual case. Its high per captia investment is
explained mainly by its two export oriented private electricity
projects, the country's only private electricity projects to reach
financial closure till 1997.
The dominant type of private participation has
varied among regions. Latin America and the Caribbean and Europe and
central Asia have favoured divestitures, while Asia has shown a clear
preference for greenfield projects. These patterns reflect country
Latin America and the Caribbean
Following the Chilean model, most Latin America
countries have introduced private participation in electricity as part
of broader reforms of a more competitive market structure. This
approach has involved vertical separation of the electricity sector
into three basic business units (generation, transmission and
distribution) transfer of at least generation and distribution to the
private sector and establishment of new regulatory frameworks, and
introduction of market mechanisms to encourage competition. This
strategy has been reflected in an emphasis on divestitures. Of the 169
private electricity projects in the region, 97 have been divestitures.
These projects have been accounted for 67 percent of investment in
privatized countries and 77 percent of the total investments in
private electricity projects in the region.
The dominance of divestitures in the region has
prevailed across the segments of the sector. Argentina, Bolivia,
Brazil, Chile, Colombia, and Peru have privatized significant
distribution and generation facilities as stand-alone business.
Argentina, Bolivia, and Chile have also privatized most transmission
facilities, and Brazil and Colombia are planning to divest soon.
In this new business environment investments in
private electricity projects have been driven mainly by market signals
such s electricity prices and demand growth. Of the $34 billion
invested in divestitures in the region, more than $5.5 billion has
been invested in expanding or rehabilitating the facilities of
privatized companies. Of the 70 greenfields projects that reached
financial closure in the region by 1997, 29 were merchant power
plants, with a total investments of $5.4 billion. These investments
have shown that private financing of power investments in competitive
markets is feasible in sound business environment.
The development of private power plants under BOT
or BOO contracts have been less popular in Latin America and the
Caribbean than in Asia. Thirty-seven BOT or BOO contracts reached
financial closure in the region by 1997, representing a total
investment of $4.8 billion. Most of that investment was captured by 18
projects in Colombia, Brazil, and Guatemala, countries that had
already embarked on comprehensive reform of their electricity sectors.
The other 19 countries were signed by Costa Rica, Jamaica, the
Dominican Republic, and Honduras, which in most cases have adopted the
Asian model of private participation.
Europe and Central Asia
Private participation in electricity in Europe
and Central Asia has been concentrated in the Czech Republic, Hungary,
Kazakhstan, the Russian Federation, and Turkey. Except in Turkey, the
approach has been similar to that in Latin America- privatizing
vertically disaggregated companies. This reflects a priority on
improving the reliability and efficiency of existing assets rather
than expanding capacity. Of 112 private electricity projects, 105 have
been divestitures, accounting for 66 percent of the investments in the
region. The privatization mechanism has differed across countries,
however. Hungary and Kazakhstan have sold controlling stakes to
private consortia, while the Czech Republic and Russia have opted for
mass privatization programmes.
The new investments that has come along with
divestiture has been limited, with additional investments in
privatized companies reaching only $2.7 billion by 1997. The main
reason has been low retail tariffs, which have been inadequate to
provide long term funding for additional investment. Another reason
has been the excess capacity in most of these countries. The same
reasons explain why greenfield projects have been an exception in the
region. Only seven greenfield projects, all under BOT or BOO
arrangements, had reached financial closure by 1997; these projects
accounted for investments totalling $3.5 billion. Five of these
projects, representing a total investment $3.2 billion, have been in
Asian countries have introduced private
participation in mainly through private financing of new generation
capacity in the form of independent power producers. This approach
reflects the priority given to expanding capacity to keep pace with
expected demand growth and the slow progress in implementing deeper
sectoral reforms. Of the 165 electricity projects reaching financial
closure in East Asia and the Pacific by 1997, 139 involved the
construction of new power generation plants. These projects accounted
for 57 percent of total investment in private greenfield electricity
projects in developing countries and 84 percent of the total
investment in private electricity projects in the region. In South
Asia 54 of 57 private electricity projects involved the construction
of new power plants. These projects represented 21 percent of the
total investments in private projects in the region.
The priority given to expanding generation
capacity is also reflected in other forms of private participation
pursued in East Asia and the Pacific. The 11 management and operations
contracts signed in the region have involved investment commitments to
rehabilitate existing generating facilities. Most of the 15 partial
divestitures in the region have been international public offerings of
minority stakes in state-owned generating companies aimed at raising
funds for the construction of new facilities, or negotiated sales of
shares in small provincial generating plants.
Introducing private participation in generation
without first- or at least simultaneously -undertaking deeper sectoral
reforms is potentially problematic. In any cases this strategy has
reduced pressures to implement cost-covering retail tariffs.
Postponing tariff adjustments affects the creditworthiness of power
offtakers and usually leads to demands for government guarantees of
power purchase agreements, exposing taxpayers to substantial
contingent liabilities. In most cases taxpayers are also left to bear
the risk of misestimates of future demand for bulk power. Many of
these problems have become dramatically apparent in the past year as
the region has weathered a major macroeconomic crisis. The crisis will
likely lead to a reassessment of past approaches and accelerate
progress in introducing private participation in distribution and in
implementing related structural and regulatory reforms.
Africa and the Middle East.
Private participation in electricity in
Sub-Saharan Africa and in the Middle East and the North Africa at a
relatively early stage. This situation reflects limited progress in
implementing cost-covering tariffs and in opening the sector to
private capital and, particularly in many countries of Sub-Saharan
Africa, investor perceptions of high country risk.
In Sub-Saharan Africa private participation has
taken different forms. Five countries (Comoros, Core d'Ivoire, Gabon,
Guinea, and Guinea-Bissau) have transferred the management of their
integrated utilities to private firms through management and
operations contracts with major capital expenditure, while three
countries (Ghana, Mali, and Sao Tome and Principe) have awarded five
management contracts. There have been nine greenfield power projects
and two divestitures in the region. The divestitures have been
relatively small and have involved isolated cases rather than entire
In the Middle East and the North Africa private
participation in electricity has so far been limited to a few
greenfield projects and a management and operations contract awarded
by Morocco that covers both power and water. But if recent proposals
are implemented, there should be a rapid increase in private
participation throughout the region over the next few years.