Overreliance on the private sector for power generation investments when there are structural issues in the distribution sector that may not result in desired outcomes. Financial viability and cost recovery in the sector are important considerations for private sector investments in power generation in the absence of opportunities to sell electricity outside the state. Before India’s Electricity Act of 2003 was enacted, it was difficult to attract private sector investments to power generation in Madhya Pradesh, for investors were concerned about MPSEB’s ability to set aside adequate cash flows to meet power purchase obligations (escrow cover). After the provisions of the Electricity Act related to the setting up of a competitive power market and open access to a transmission network were implemented, private investors have shown increased willingness to invest in power generation in Madhya Pradesh as demonstrated by the recent success in initiating several private sector investments with likely capacity additions of more than 1,500 MW from private sector projects in next 2–3 years.
Madhya Pradesh Power Sector Development Program [Loans 1868/1869]