Over the last two decades, a great deal of attention has been given to the role of institutions
in economic growth. Good institutions embody a heritage of past good policy decisions and
themselves generate a flow of superior policy decisions that support sustained investment and
production growth (Rodrik et al., 2002). It has been argued that to ensure sustained growth and
convergence with the living standards of advanced countries, the acquisition of high quality institutions
is the prerequisite. These arguments apply with extra force to infrastructure
industries, i.e., the utility service industries. An effective institutional framework is essential to sustain growth in
output, efficiency and capacity of the utility service sector such as electricity,
telecommunications and water. The standard solution is to introduce an independent regulatory agency, within a
clearly defined legal framework. The regulatory agency
would engender sustained growth in capacity and efficiency in utility service industries.
In the last 20 years, the power sector has been subject to restructuring. Despite the
challenges of high capital costs, political interference, network monopoly effects, daunting regulatory
tasks, reformers have found ways to introduce market forces. In the early 1980s, new ideas have
been advanced and economists have recognized that some aspects of electric power systems are
not natural monopolies and could be made more efficient through market competition (Joskow
and Schmalensee, 1983). |
