India kicked off a new phase of power reforms on Monday with a new law that will encourage competition, cut subsidies and attract private investment in the energy-starved country, officials and analysts said.

The law will help reform bankrupt power utilities, which are making losses because of providing farmers and households with subsidised power, widespread theft and poor collection of electricity bills.

Power Minister Anant Geete said the new law, passed by parliament after three years of debate, would help the government achieve its target of doubling India's generation capacity of 100,000 megawatts by 2012.

Industry bodies said they want to see an effective implementation of the law.

"It is a great thing but ultimately the commitment and administrative ability of the state governments will matter," said T K Bhaumik, an economist with the Confederation of Indian Industry.

Power producers welcomed the law, saying it would bring order to the sector.

"I am excited. It will bring in some kind of order in the power sector," Harry Dhaul, director general of Independent Power Producers Association of India said.

India liberalised power generation in the early 1990s and invited foreign firms including Enron Corp to invest in the sector but investors fled as electricity boards continued to monopolise distribution in most parts of India.

Enron shut Dabhol Power Company -- its $2.9 billion plant south of Mumbai -- once showcased as an Indian success story in attracting foreign investment, in June 2001 after a billing dispute with the Maharashtra State Electricity Board, its only customer.

The new law will allow generating firms to sell electricity directly to large industrial customers, who are currently forced to buy costly power from state utilities.

"You can now source power from wherever you want. It will help power-intensive industries like aluminium, ferro-alloys and cement," Dhaul said.

The practice of industrial users subsidising farmers and households will now end, officials said.

"Instead of the complex cross-subsidisation, we will now have a transparent system in which the state governments will have to give a direct subsidy to electricity boards from their budget," a power ministry official said.

Power ministry officials said the law would also allow companies running dedicated power plants to sell electricity directly to customers, increasing the power available in the network.