Role of Power Sector Reforms

The power sectors in China, India, and Mexico have undergone a process of deregulation and increased privatization, to varying degrees. The impact of these reforms has been mostly positive with increased competition and independent regulation helping to improve the overall institutional and financial health of the power sector. In India, the liberalization and restructuring of the power sector has to be seen as mixed at best due to poor design of the "reformed" power sector (i.e., not fully suitable for the Indian context), inept management of the reform process, and deficient governance in practice [48-51]. However, there are signs of hope, including greater scrutiny of the performance of the reforms; better understanding that successful reforms necessarily will require a tailoring to the Indian context; and institutional learning and capacity building. Regulatory institutions in India will have to be strengthened by giving them greater credibility and enabling the development of their capacity. In addition, regulators themselves must work in a cooperative manner to improve and strengthen regulatory practices and improve stakeholder participation [48]. While private investors have entered other sectors in India, they have been more hesitant to enter the energy market because of the preferential treatment given to public-sector energy companies [9]. It is, therefore, important that a transparent, predictable, and consistent investment framework be put in place. Another priority should be to reduce start-up hurdles, such as delays in acquiring land, environmental clearances, and construction permits [9].

Power sector reforms in the Chinese electricity market began in the mid-1980s when non-central governmental entities were allowed to invest in generation, and the process of reform received a boost in 2002, when the State Power Corporation (SPC) was split into two transmission and nine-generation companies, resulting in a dramatic change in the structure and ownership of the power sector. Further, private investments by local and foreign players have been increasing, overseen by the State Electricity Regulatory Commission. Central government has been actively seeking the involvement of private and state-owned entities to introduce the elements of market-based incentives to improve system efficiency. However, to meet the goals of economic growth, power sector reforms will have to be accelerated in China, to meet the needed investment in the power sector, without compromising environmental quality and health of its land and people [52].

While political efforts to introduce reforms in the energy and power sector have often been stalled by the Mexican congress, de facto liberalization has already taken place. The liberalization in the Mexican power sector is spurred by changes in the regulations initiated in 1993 to open power sector to private investment [53]. In 2009, power generated by IPPs contributed about one-third of the total electricity generated in the country [38]. Given that private sectors contribution was nil only 10-years ago, this indicates a significant shift towards privatization in Mexican power sector, compared to that in China and India. However, the uncertainty in the policy environment and slow pace of deregulation has been a key deterrent to increased participation by the private sector in all aspects of power sector. Specifically, the reform has been slow in other parts of power sector. To summarize, structural reforms are a key component in meeting long-term energy demand of the three economies, but the electricity sectors are far from being competitive. Weak institutional framework and lack of clear policy direction are key impediments in achieving regulatory reforms to make the power sector more competitive in these economies.

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