Reform and Regulation in the Indian Power Sector

Thu Feb 04 15:24:38 EST 1999
By Dr. Michael Rosenzweig with Dr. Sarah Voll

When Indian policy makers engage in the process of reforming the Indian power sector, they commit themselves to more than the first dictionary meaning of "making better by removing faults or defects," a definition that implies that the sector can be redeemed by tinkering around the edges of tariffs, cross subsidies, engineering improvements and management incentives. Rather, they are undertaking the more fundamental process of reforming the sector, of forming it again and anew, of recreating its structures and relationships. In doing so, they join policy makers, utilities and regulators around the globe who have re-examined the basic engineering and economic premises of their existing constructs in light of an emerging world of competition in production and choice for consumers.

In 1996, Sally Hunt and Graham Shuttleworth distilled NERA's work over six years and six continents into Competition and Choice in Electricity, a work intended to provide a conceptual framework for policy makers in the new environment. They identified four basic market structures, the four alternative forms from which reformers can choose: integrated utility, single buyer, wholesale competition and retail competiton. Each of the four models has unique implications for three important policy considerations: economic efficiency, social policy obligations and regulatory framework, and the reformers' choice of structure will depend not only on the engineering and information complexities but on their other public policy objectives as well. The paper discusses the models in the Indian context and their implications for the choice of regulatory structure.

This paper was presented at "Transition to a Liberalised Environment -- Experiences and Issues in Regulation" in New Delhi, Feb. 3-4, 1999.