This is a research study on how the transition to appropriate power pricing mechanisms in Andhra Pradesh might be managed. Its objectives are to develop fact-finding and analytical mechanisms and to use them to recommend satisfactory, workable paths that would balance the interests of all of the major stakeholders in electric power supply reform, recognizing that practical solutions cannot be obtained by sound economic analysis alone.
We believe that the successful conduct of this research will serve as a template for implementing power-pricing reform in other regions in India and possibly outside India as well. While India's reform program since 1991 has stressed the importance of the power sector, achievements have fallen considerably short of expectations. As a result, energy shortages are currently estimated to have risen to 15% in March 1999 from 7.5% in March 1995 and peak shortages to 29% from 16.5%. The causes of the shortfall consist of both inefficient management and shortages of investible resources arising from budgetary constraints and subsidized power supply. Nationally, the State Electricity Boards (SEBs) lost 21.5% of capital employed in 1998 alone. Two important consequences of their financial weakness are that investment in private generation is discouraged because investors are not sure that the SEBs will be able to pay for power and, second, that they cannot afford the capital investment needed for rural electrification.
Thus, the solutions should include, in turn, more private investment in power generation facilities, reorganization of power transmission and distribution, and power pricing reform.