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India's Power Sector Liberalisation: An Overview

The Indian power sector was opened with much fanfare to private participation in 1991 to hasten the increase in generating capacity and to improve the system efficiency as well. However, although several plants are under construction, till early 1999, generation had commenced at private plants totalling less than 2,000 MW. In contrast, some state undertakings have completed their projects even earlier than scheduled. Independent power producers (IPPs) claim that their progress has been hindered by problems such as litigation, financial arrangements, and obtaining clearances and fuel supply agreements. On the other hand, the state electricity boards have been burdened by power purchase agreements (PPAs) that favour the IPPs with such clauses as availability payment irrespective of plant utilisation, tariffs reflecting high capital costs and returns on equity, etc. The process of inviting private participation in the power sector and the problems experienced seem to have spurred on the restructuring of the power sector, including the formation of Central and State Electricity Regulatory Commissions. However, some important problems have not been addressed. Additions to the generation capacity without corresponding improvement of the transmission and distribution facilities is likely to further undermine the system efficiency. What is more, issues like the reduction of 'commercial losses' appear to have been ignored. Most importantly, investment in infrastructure has been a state responsibility because the intrinsically long gestation coupled with the relatively low returns from serving all categories of consumers have rendered such projects commercially unprofitable. Whether or not private participation can take on such tasks is to be seen.

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