From: AJAY NARAYANAN <[EMAIL PROTECTED]> Subject: RE: California blackouts and conservation Date: Wed, 24 Jan 2001 09:36:43 +0530 Dear Patrick/Adam/RavindraVinayak, I have been following the discussion over the leadnet. I see the problem is one of changing regulations and the inability of the adminstration and government to think the issues through. The efficiency of the market is best achieved when the regulatory regime ensures that the market does indeed operate. The case of privatisation of power in India (starting at the generation end) is a case on how privatisation should not be attempted. Because the buyer of power (the State Electricity boards) were bankrupt, the private investors were given contractual guarantees for returns. In the case of Enron, the project developer was given a guaranteed rate of return with all expenses being a pass through and the foreign exchange risk being borne by the state (and eventually the consumer). Clearly with guaranteed offtakes and returns, the private power producer has no incentive to supply power at a lower cost (and therefore be "competitive"). Ths situation is now even more complex as the state regulator has prevented the utility from passing on the higer cost of power to the consumer. As a result (as per the contracts) it is cheaper for the utility to pay Enron not to generate.. and even then it is a huge outgo from an already bankrupt utility. Vinayak's point here on the lack of capacity of the bureaucrats and politicians to negotiate their position (the national interest) effectively is the problem !. In any case, an private company is clearly driven by the profit motive and there is really no doubt about this. The key is for the state and its negotiaters to be able to attract the private players while protecting the consumer interests In the case of California if the prices did go up significantly, market economics would dictate that conservation and efficiecny improvements would automatically become attractive. I am not clear on why this is not so in this case. The other possibility is that there is a genuine demand supply gap and the entire supply is being preferentially diverted to industries. Also Industries are more likely to have reached reasonably high levels of energy efficiency to improve bottom lines. This leaves out the small consumer who as indicated in the California case is facing the brunt of the power shotage. While I would attribute this problem to the situation of improperly concieved and implemented process of power derugulation, I am also concerned that most attempts at liberalisation (including India) talk of removing "regulatory bottlenecks" but not adequately thinking through the alternative regulatory frameworks that would need to be in place. While the entire underpinnings of market economics imply that consumer choice leads to efficiency in service provision, most planners and state agencies lose sight of the consumer and end up seeking to make the environment "conducive" for private investors and developers. I beleive this is where projects like Enron may have gone wrong. The ideal way to privatise would be to allow private power generators to come in without guarantees (except that the cheapest power will be purchased by the utility. However on account of the poor finances of the utility, these interim security measures (State and central Government guarantees for utility payment) were required. Only as stated earlier the terms were poorly negotiated. regards Ajay Narayanan C-9 --------------------------------------------------------------------- Mulai langganan: kirim e-mail ke [EMAIL PROTECTED] Stop langganan: kirim e-mail ke [EMAIL PROTECTED] Archive ada di http://www.mail-archive.com/[email protected]
