As part of PESD's ongoing research on power sector reform, the program has focused on the special role of independent power projects (IPPs). Many countries institute reform with the goal of attracting private (usually foreign) investors in new generating capacity. IPPs, rather than across-the-board reform, are usually the mechanism employed; yet the IPP market has been highly volatile in the last decade and has evaporated in most countries in recent years.

Private investment in electricity generation in developing countries grew dramatically during the 1990s, only to decline equally dramatically in the wake of the Asian financial crisis and other troubles in the late 1990s. The Program on Energy and Sustainable Development at Stanford University has undertaken a detailed review of the IPP experience in developing countries. The study has sought to identify the principal factors that explain the wide variation in outcomes for IPP investors and hosts. It also aims to identify lessons for the next wave in private investment in electricity generation.

This article presents the conclusions and analysis of the study of the experience of investment in greenfield IPPs in developing countries. The term "independent power producer" has been used to refer to several types of enterprises, but for this paper, "IPP" refers to a privately developed power plant that sells electricity to a public electricity grid, often under long term contract with a state utility. For this study and report, the lead actors in every IPP are private investors usually foreign, but often with local partners. The classic foreign-sponsored, project-financed IPP has taken root in more than fifty emerging countries that display wide variation in economic, political and social environments. The wide variation in settings for IPPs affords a special opportunity for researchers to probe systematically the critical factors that contribute to outcomes for host countries and for investors.

During 2004-06, the Program on Energy & Sustainable Development undertook a study of the experience of independent power producers ("IPPs") in developing countries. As part of the study, the Program sponsored a series of country studies. These papers detail the basic contours of the IPP experience in each country and discuss the country factors identified in the research protocol. Additionally, each paper presents the universe of greenfield IPPs in the country, identifies the significant characteristics across which these projects vary, and selects a small number for individual examination.

This paper summarizes the experiences of the countries and projects that were part of the IPP study. Additionally, the paper provides a concise statement of project outcomes and a brief statement of the rationale underlying the analysis of each project. In doing so, the paper aims to gather in one place the disparate outcomes that are discussed in a long series of working papers, thereby providing a transparent and accessible document that will facilitate further study and critique of the original coding for the study, as well as of the analysis of projects and countries.

This report examines the connections, if any, between efforts to enhance development through electrification of the world's poorest households with the parallel efforts to introduce market forces in the power sector. Advocates for equitable economic development have rightly signaled many concerns about the process of electricity reform. Their fears range from the higher prices that often accompany reform to the concern that private firms motivated for profits will not have an incentive to provide public services. Some of these fears have been articulated by implying the existence of a "golden era" when state owned firms dominated the power sector and provided energy services equitably across societies; in fact, that golden era never existed in most countries. Public utilities traditionally have been highly politicized; in many countries they have concentrated their services on urban elites and often neglected the poorest populations.

Prior to the introduction of independent power projects (IPP), Kenya relied primarily on concessionary funding from multilateral and bilateral agencies to finance new power investments. In the 1990s, however, the global donor trend shifted toward private participation in infrastructure with concessionary funding being targeted at health and social services. This move away from development finance for power projects was aggravated by a general aid embargo, imposed on Kenya throughout the early and mid-1990s, for reasons linked to corruption and lack of advancement in the creation of a multi-party state, which affected all sectors, including power. Thus, a platform of reform for opening up the country's generation sector to private participation gradually emerged in the mid-1990s, paving the way for contracting the first set of IPPs in 1996.

This paper was prepared by Management Programme in Infrastructure Reform &  Regulation at the University of Cape Town Graduate School of Business Breakwater Campus, Cape Town, RSA.