Power Sector Reform in Asia David Parish

My Involvement in Asian Power India Bangladesh Cambodia Pakistan Sri Lanka Philippines Vietnam Plus review of ADB sector policy

Asian power sector around 1990 Universal public ownership Extensive political intervention in all aspects of activity Integrated utilities High levels of losses and poor collection performance Supply interruptions Major investment needs Significant subsidies to the sector from taxpayers

Two Caveats Significant variations between countries in speed and enthusiasm for reform Vietnam: late starter but keen implementer Bangladesh: early starter but slow progress Even bigger variations within countries, especially India but also Pakistan and Bangladesh

The standard model for reform Unbundling (gencos, transco and discos) Independent Regulation Private sector involvement

The standard model for reform Unbundling (gencos, transco and discos) Independent Regulation Private sector involvement Moves towards competitive markets Operational Improvements Financial solvency Tariff reform

Unbundling Some progress almost everywhere India: centrally mandated requirement for states but mixed progress Philippines: largely complete Pakistan: structure in place but resistance within WAPDA Bangladesh: work in progress and slow Vietnam: work in progress but appear committed Sri Lanka: reform stalled

Unbundling Creates framework for competition and private participation Accompanied by corporatization and creation of new companies Creates new senior positions, especially in discos Significantly improved results, eg in India, Bangladesh and Vietnam Reduced losses (technical and non-technical) and better revenue collection

Independent Regulation Slow but sometimes significant progress India: central regulator and in most states but effectiveness varies Pakistan: good regulator but government still controls tariffs Bangladesh: extreme delays in both legislation and establishment Philippines: interesting model but some political interference Vietnam: just starting Sri Lanka: stalled

Independent Regulation India best example to date (regulatory Raj replaces licence Raj) Areas such as Delhi and Gujarat have effective regulation Western regulatory models do not cater for situations with large supply shortfalls Continuing political interference almost everywhere

Independent Regulation Regulator often sees role as keeping prices down at all costs Commitment to cross subsidy Unwillingness to respond to fuel price increases Not met objectives in any country yet Negligible progress in tariff reform But it was always going to be a challenge

Private Sector - Generation Many IPPs contracted in mid to late 1990s from international companies Some dubious investments, eg in Pakistan and Philippines and Enron in India State solvency at risk in Pakistan and Philippines Excellent projects in Bangladesh and Vietnam International investors have less interest since 2000

Private Sector - Generation Growing local capacity, especially in India Some privatization in Philippines, but some failures as well High initial costs but efficient plant operations Projects require government guarantees All projects to date have been baseload plants Very difficult to promote projects at the moment

Private Sector – Transmission and Distribution Private transmission project in India Sale of KESC in Pakistan Share issue by distribution and transmission companies in Bangladesh Cooperatives in Philippines and Bangladesh Limited conclusions

Competitive Markets Countries generally adopt single buyer model in first stage Open access continues to be an objective, not a reality Continuing high levels of captive plant Unwillingness to differentiate retail tariffs Cross subsidy in retail tariffs Question mark over viability of power investments without demand guarantees

Conclusions: Is it working? Reform remains a work in progress Slow progress but not surprising with so much at stake. Ambitious hopes of structure like telecoms industry is dead Very little regression back to old models Unbundling has generally been successful

Conclusions: Is it working? Regulation has a long way to go Private sector has mixed results Competition only in generation and even there is limited Financial results still poor Tariffs unreformed and a growing issue with system peak