n developing countries has traditionally been the responsibility of governments. Public utilities in several large developing countries are unprofitable. As a result they are not able to INFRASTRUCTURE TO 2030: TELECOM, LAND TRANSPORT, WATER AND ELECTRICITY - ISBN 92-64-02398-4 © OECD 2006 OUTLOOK FOR GLOBAL INVESTMENT IN ELECTRICITY INFRASTRUCTURE finance new projects themselves. Moreover, investing in new plant is only part of the challenge. Utilities must also purchase fuel to run their power plants. Expenditure on fuel in power stations in developing countries over the next thirty years is expected to be of the same order of magnitude as the investment in infrastructure. The poor financial health of public utilities results from a number of factors: Under-pricing of electricity. Average electricity tariffs in many developing countries are not high enough for the public utility to cover its full costs. In some cases they do not even cover short-run marginal costs. India is a glaring example of this problem. In 2001/2, the latest year for which data are available, the average price of electricity sold was equal to only about 65% of the full cost of supply (TERI, 2004). As a result, the state electricity boards have been unable to invest fast enough to keep pace with demand, despite additional funding from the central government and private investors for some projects. Shortfalls in peak capacity, which averaged about 13% in 2001/02, result in widespread and frequent power outages and voltage fluctuations. Under-collection of revenues, caused by non-payment or theft, is also a serious problem in many countries. Non-collection is akin to a 100% subsidy, and can be more distorting and costly than under-pricing of electricity. In some cases, small amounts owed by poor households are not collected for social reasons. But the loss of revenues, by lowering the capacity of the utility to invest, holds back the extension of the network and electrification, especially in rural areas where costs are generally highest. Hig