World Investment Report

In most developing and industrial countries, infrastructure services have traditionally been provided by government enterprises, but in developing countries at least, these enterprises have often proven to be inefficient, unable to provide much-needed investments, and manipulated to achieve political objectives. By contrast, many studies have shown that over the past 30 years, private (or privatized) enterprises in developing countries have, on average, delivered superior performance and needed investments. Explanations differ on why this discrepancy exists. Private enterprises are driven by a desire for profits and may have more professional know-how in management, operating procedures, and use of appropriate technology. But perhaps the most important reason for their stronger performance is that privatization makes intervening in enterprise operations difficult for governments and politicians, so government manipulation is less likely. However, the issue, in general, has been how to ensure that the improved performance and efficiency gains are passed through to the users through lower tariffs and increased coverage, while allowing firms to earn a fair rate of return on their investments.

Granting and Renegotiating Infrastructure Concessions: Doing it Right

In the debate on no-regret potentials, transaction costs are a rather controversial issue On the one hand, the controversy concerns the level of transaction costs related to energy saving measures Existing cost-benefit analyses for energy saving measures are often criticised for being incomplete because, allegedly, they would not fully account for transaction costs Depending on the level of transaction costs, this negligence is more or less severe Some studies, e g Sutherland (1991), hold that transaction costs are so high that they challenge favourable results of quantitative cost-benefit analyses and explain why energy-efficient technologies are not adopted Other studies implicitly assume transactions costs to be zero (e g Lovins, Lovins 1991; Landwehr et al 1996) As pointed out, e g by Golove and Eto (1996, p 24) this aspect of the debate suggests a need to empirically quantify transaction costs and integrate them in the cost-benefit assessment of the measures considered

Transaction cost economics

https://www.webssa.net/files/guasch_laffont_straub_2008_-_copie.pdf

Renegotiation of concession contracts in Latin America ☆: Evidence from the water and transport sectors

This study provides objective information and analysis on the performance of public-private partnerships (PPP) projects in urban water supply and sanitation in developing countries. It reviews the spread of urban water PPP projects during the past 15 years, and assesses whether and how they have helped to improve services and expand access for the populations concerned. The study uses a structured framework to assess the performance of more than 65 large water PPP projects that have been in place for at least five years (three years in the case of management contracts) and that provide services to a combined population of almost 100 million. By population size, this sample represents close to 80 percent of the water PPP projects that were awarded before 2003 and have been active for at least three years. The analysis focuses on the actual impact of these projects for the concerned populations, that is, the net improvements achieved under these partnerships. Chapter two summarizes the historical development of water PPPs in developing countries, reviewing the current state of the market, the rate of contract cancellations, and the evolution of the industry. Chapter three reviews the performance of PPP projects in terms of access, service quality, operational efficiency, and tariffs. Chapter four draws conclusions and lessons on how to make public-private partnership a more viable and sustainable option for improving water supply and sanitation (WSS) services in the developing world.

Public Private Partnerships for Urban Water Utilities: A Review of Experiences in Developing Countries

Government guarantees can help persuade private investors to finance valuable new infrastructure. But because their costs are hard to estimate and usually do not show up in the government's accounts, governments can be tempted to grant too many guarantees. Drawing on a diverse range of disciplines, including finance, history, economics, and psychology, Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects aims to help governments give guarantees only when they are justified. It reviews the history of government guarantees and identifies the cognitive and political obstacles to good decisions about guarantees. It then develops a framework for judging when governments should bear risk in an infrastructure project (seeking to make precise the oft-invoked principle that risks should be allocated to those best placed to manage them); explains how guarantees can be valued; and discusses how aspects of public-sector management can be modified to improve the likely quality of government decisions about guarantees.

Government Guarantees: Allocating and Valuing Risk in Privately Financed Infrastructure Projects

The past 15 years have witnessed a fundamental change in the way governments think about infrastructure. In rich and poor countries alike, private ownership and operation have been replacing public provision, while monopoly has been giving way to competition. Concessions have played a central role in these changes. This chapter presents a rationale for concessions and compares different types of concessions, particularly those used in the development of infrastructure. Concession refers broadly to any arrangement in which a firm obtains from the government the right to provide a particular service under conditions of significant market power. A concession is thus a device that can be used to create competition for a market, when competition in the market is not operating. Concessions should be used in areas where they are most likely to aid development, such as regulating natural monopolies (services that can be provided more cheaply by a single firm than by two or more). As well as pure concessions, there are arrangements called franchises, operating concessions, management contracts, leases, affermages, and build-operate-transfers (BOTs). In a retail concession, the concessionaire sells services to the public; in a wholesale concession, the concessionaire sells to another entity (often a government agency or state-owned enterprise), which in turn sells to the public.

Concessions for Infrastructure: A Guide to Their Design and Award

This proposed SDN surveys the various accounting stratagems which governments have used to meet fiscal targets—thereby sidestepping the need for true adjustment—and suggests remedial actions to limit this type of fiscal non-transparency. Types of creative accounting covered includes, for instance, currency swaps to hide a debt build-up (as in Greece in 2001–07), sale and leaseback of government property (for example, in the United States), assumption of long-term pension obligations in exchange for short-term revenue (Argentina, Hungary, and other Eastern European countries), use of public-private partnerships to defer the recognition of investment spending (for instance, Portugal), and reliance on non-cash compensation (such as pension rights) to reduce measured wage bills (in the United States, United Kingdom, etc.) As is evident from the examples given, these fiscal tricks have recently come under increased international scrutiny, highlighting the importance of good fiscal reporting, accounting, and transparency in general, for avoiding unpleasant surprises, ensuring government accountability, and containing fiscal vulnerabilities.

Accounting Devices and Fiscal Illusions

This note compares the effects of price cap and rate-of-return regulation on the risk borne by regulated utilities. It present evidence that price cap regulation subjects firms to greater risks and therefore raises their cost of capital. This result has one clear implication: firms regulated by price caps must be permitted to earn higher returns. If they are not, they will be unable to attract new investment capital and the quality of their service will decline.

Price Caps, Rate-of-Return Regulation, and the Cost of Capital

When governments seek private investment in infrastructure projects, they usually find themselves asked to provide grants, guarantees, or other forms of fiscal support. Often they prefer to provide support in ways that limit immediate cash expenditure but sometimes generate large costs later. Seeking to provide support without any immediate spending of cash, for example, governments often agree to shoulder project risks and sometimes encounter fiscal problems later. For example, in the 1970s and 1980s in Spain, the government was obliged to pay $2.7 billion when the exchange-rate guarantees it had given private toll roads were called (Gomez-Ibanez 1993). More recently, the Indonesian government agreed to pay $260 million as a result of its agreements, through the electricity company it owns, to bear demand and foreign-exchange risks in private power projects. Yet even when governments have chosen to provide cash subsidies they have not always achieved their apparent goals: for example, over 80 percent of the Honduran government's "lifeline" electricity subsidies go to customers who aren't poor (Wodon et al. 2003). In still other cases, governments' decisions not to provide support may have caused problems.

Public Money for Private Infrastructure: Deciding When to Offer Guarantees, Output-based Subsidies, and Other Fiscal Support

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