75613 August 2012 PPIAF Assistance in East Asia and the Pacific Technical Assistance for East Asia and the Pacific’s Energy Sector The regulatory framework in many Asian developing countries has been reformed to promote private sector investments in power generation. Where commercially viable, competitive bulk electricity markets with multiple buyers and multiple sellers are being or have been established to increase efficiency and pass benefits to consumers. Asian developing countries that have decided to restructure the power sector include the People's Republic of China; India; Indonesia; Republic of South Korea; Malaysia; Pakistan; Philippines; Singapore; Taipei, China; and Thailand. In a competitive electricity market, decisions to invest in power generation plants that provide bulk electricity for trade are based on estimates of future variations in the demand and price of electricity, as in other commodity markets. In developed economies, particularly in the United States, the merchant power plant model for building or acquiring power generation plants is increasingly used. In early 2002, PPIAF funded a study designed to develop a framework for financing merchant power plants in developing countries. The study defined a merchant power plant as a power plant owned or controlled by the private sector that is free to negotiate the basis for selling its output to willing buyers. Likewise, the debt servicing is not directly or indirectly guaranteed by any government or non-commercial arrangement. The activity established a broad understanding of the merchant power plant model. For power sector restructuring to be successful and for competitive electricity markets to be efficient, a proper understanding of the merchant power plant model is necessary among policymakers, regulators, and lenders. As part of the report, the authors developed a database of merchant power plants around the world—their characteristics, the policies surrounding them, etc.—to develop a source of information from which to glean best practices and recommendations for structuring merchant power plant deals in developing countries. Basic recommendations regarding merchant power plant development included: i) power sector reform in all developing countries should be revitalized and accelerated; ii) power sector reform should be driven by government to overcome resistance from vested interest groups; iii) countries should tailor merchant power plant frameworks to meet their individual needs; and iv) countries must be market ready (i.e., have public support, solid investment and legal frameworks, independent regulation, etc.) before implementing competitive electricity markets. Furthermore, full or partial privatization of government-owned power authorities should not be attempted until after a market is introduced; and multilateral development banks should play an active role at the policy support level and in facilitating financing of merchant power plants through the provision of analysis, insurance, direct project finance, or stranded investment support. In 2011 Singapore developed one of the first Merchant Power Plants in Asia with the 800 MW GMR 1 Energy power project. The plant should be operational by 2013. Results of PPIAF’s Activities in East Asia and the Pacific’s Electricity Sector Category Outputs Enabling environment reform  Development of a Framework for Financing Merchant Power Analyses/assessments prepared Plants in Developing Countries, July 2004 Capacity and awareness building Workshops/seminars  Dissemination workshop in Manila, February 2004 1 See: http://www.nortonrose.com/news/54024/norton-rose-advises-on-singapores-merchant-power-project 1