Power sector reform in South Asia: Why slow and limited so far?

Abstract

Although South Asian developing countries had initiated some form of electric power sector reform in the 1990s, often under external lending agency pressures, not much progress has been made so far and there is hardly any noteworthy example of a successful reform in the region. This paper provides a brief review of power sector reform efforts in five South Asian countries and uses an institutional economics framework to identify the factors shaping the success of power sector reforms. Four factors, namely instability of rule-makers, poor overall acceptance, slow adaptation and poor transition management are identified and their effect on the reform process of South Asia are analysed. The paper finds that political instability has affected the power sector reform of the region, making hard decisions difficult to take. Slow progress of reform has also affected the sector viability, as signs of adverse effects on the power sector investment and performance are already visible.

Introduction

Since late 1980s reform became the normal prescription of the multi-lateral donor agencies like the IMF and the World Bank and the reform agenda has been pursued vigorously since 1990s for more than a decade now. Despite having wide range of possibilities ranging from minimal structural changes to complete structural disintegration of the activity of the industry (see for example Hunt and Shuttleworth, 1996; Tenenbaum et al., 1992; Newbery, 1999), the policy of functional disintegration and privatisation of the industry was generally prescribed without paying much attention to the economic and institutional environment of the country (Sharma et al., 2004). Consequently, recent reviews indicate that not much progress has been made in many parts of the world (Bacon and Besant-Jones, 2001; WEC, 1998; World Bank, 2003), although most of the countries have initiated some reform of their power sector.

Countries in the South Asian region joined the bandwagon often under external insistence but did precious little to produce any example of successful reform in the region. As reform falters or progresses slowly, developing countries face other issues such as lack of adequate funding for new capacity addition, neglect of utility operation and management, and increase in government involvement in the management and decision-making of the industry, contrary to the expected objectives of the reform. Moreover, there are also concerns about social sector and environmental consequences of the reform (Dubash, 2002; Wamukonya, 2003).

In this context, this paper analyses the progress of power sector reform in five South Asian countries, where more than 22% of the world population is concentrated and where around 40% of the population has access to electricity services. The paper presents a contrasting situation of the power sector in these countries and discusses their reform experience. An institutional economics perspective is used to identify the factors affecting reforms and the reform process. The framework is then employed to analyse the South Asian experience.

The paper is organised as follows: Section 2 presents a brief overview of the South Asian power sector and the reform initiatives taken in each country; Section 3 presents the institutional perspective of reform while Section 4 presents the analysis of South Asian reform experience using the institutional framework. Finally, some concluding remarks are provided.