In October 1991, the Ministry of Power announced its policy to encourage private enterprises to participate in electricity generation, supply and distribution. Prior to this, the legal framework (Indian Electricity Act 1910 and Electricity (Supply) Act 1948) provided for three types of utilities-SEBs, Licensees and Government-owned Generating Companies (GOGC). Existing private sector utilities were allowed to continue, but were not permitted to expand. The existing laws were amended to allow private sector in power generation and enter the distribution and retail market as licensees. The 1991 announcement provided a set of guidelines to arrive at the tariff for power and energy sale from privately owned generating companies. The guidelines provide a minimum rate of return on the investment made, provided the plants operate at a minimum level of efficiency.
Foreign investors desire counter-guarantees by the Central government of the power bills raised on the SEBs. The Committee of Secretaries (COS) has approved five alternative instruments to counter-guarantee, for private projects being pursued by Independent Power Producers (IPPs). In the case of seven fast track projects, the counter-guarantees have been limited to external commercial borrowings.
So far, 155 projects based on Memorandum 0f Understanding (MOU) and another 50 based on competitive bidding have been signed between private power developers and the government. All future project approvals are envisaged to be based on competitive bidding.
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