Power sector reform, private investment and regional co-operation

Abstract

Modern infrastructure, particularly electricity, is critical to economic development. South Asia, with inefficient and bankrupt state-owned vertically integrated electricity supply industries, encouraged private generation investment to address shortages selling power to largely unreformed state electricity boards, exacerbating financial distress. Reforming the SEBs is an essential first step, followed by privatisation to sustain reform. Reducing losses and increasing plant load factors yield far higher returns than generation investment, where India and Pakistan under-price and exceed predicted levels of electric intensity. Private investors will require assurances that the contracts needed for IPPs are honoured, that legal disputes are efficiently and fairly resolved, subject to fall-back international arbitration, and that their purchasers are credit-worthy. This is easier with cheap gas, which is available to Bangladesh, but scarce in India. Regional energy trade would therefore do much to improve the investment climate, and a South Asia Energy Charter could underwrite increased energy trade.