Academic journal article IUP Journal of Applied Economics

Power Sector Regulatory Governance in Orissa

Academic journal article IUP Journal of Applied Economics

Power Sector Regulatory Governance in Orissa

Article excerpt

An effective institutional framework is essential to sustain growth in output, efficiency and capacity of the utility service sectors. The regulatory agency is intended to provide the 'high quality institution' , which permits and fosters sustained growth in capacity and efficiency in utility service industries. While analyzing sustained economic growth of any state, the supportive role extended by these institutions should be taken into account. The present paper provides an assessment of the effects of privatization and regulation on the power sector of Orissa, India.

Introduction

Over the last two decades, a great deal of attention has been given to the role of institutions in economic growth. Good institutions embody a heritage of past good policy decisions and themselves generate a flow of superior policy decisions that support sustained investment and production growth (Rodrik et al., 2002). It has been argued that to ensure sustained growth and convergence with the living standards of advanced countries, the acquisition of high quality institutions is the prerequisite. These arguments apply with extra force to infrastructure industries, i.e., the utility service industries. An effective institutional framework is essential to sustain growth in output, efficiency and capacity of the utility service sector such as electricity, telecommunications and water. The standard solution is to introduce an independent regulatory agency, within a clearly defined legal framework. The regulatory agency would engender sustained growth in capacity and efficiency in utility service industries.

In the last 20 years, the power sector has been subject to restructuring. Despite the challenges of high capital costs, political interference, network monopoly effects, daunting regulatory tasks, reformers have found ways to introduce market forces. In the early 1980s, new ideas have been advanced and economists have recognized that some aspects of electric power systems are not natural monopolies and could be made more efficient through market competition (Joskow and Schmalensee, 1983).

The present paper provides an assessment of the effects of privatization and regulation on the power sector of Orissa, India. It discusses the reforms in the power sector, and gives a brief note on the reform of the power sector of Orissa. The hypotheses tested and the model employed for the analysis are then presented. Subsequently, it discusses the results obtained and offers conclusion.

Reform of the Electricity Sector

A number of studies and reports (Bacon, 1995; Czamanski, 1999; and Victor and Heller, 2007) have already described the principal driving forces behind electricity reforms. These can be summarized as :

* The poor performance of state-owned power sector in terms of high costs and unreliable supply;

* The inability of the state power sector to meet the increasing demand for power resulting from the economic development in other sectors of the economy;

* Rapid changes in technology in both generation of power and in the computing systems used to meter the power distributed;

* The need to remove electricity subsidies to make resources available for other areas;

* The desire to raise immediate revenue for the government through the sale of assets;

* Pressure for reforms from international financial organizations, such as IMF and World Bank; and

* The demonstration effects of the pioneering reforms of the power sectors in Chile, England and Wales, and Norway in the 1980s. The England and Wales experience is widely seen as a success and that has established a model for reforms in other parts of the world. 'The Standard Textbook Model' of the electricity sector reforms arose from this experience. There are four elements in the model, as shown in Table 1.

Electricity Sector Reform in Orissa

In Orissa, electricity is generated from both hydel power and thermal power projects. …

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