Regulatory strategy and restructuring - model for Gujarat power sector

Abstract

True reform and restructuring of any state electricity board in India would have to address the enormous leakage of revenue from the system. This would call for privatisation of distribution, and change in the institutional mechanism for the administration of the subsidy. Rather than the detailed regulatory mechanisms which are being pushed by the central government and the regulators, light and price-cap type regulation would suit India better. A model plan for change is put forward for the Gujarat State Electricity Board, which is quite general and could easily apply to other SEBs. A complete separation of distribution from generation is neither necessary nor desirable. Existing IPP contracts would have to be extinguished and methods to carry out the same are suggested. The danger of mounting regulatory risk, either shutting out private power production, or resulting in massive tariff increases taking place are real.