THE FUTURE OF PRIVATE INFRASTRUCTURE: LESSONS FROM THE PAST DECADE

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THE FUTURE OF PRIVATE INFRASTRUCTURE LESSONS
FROM THE PAST DECADE

• José A. Gómez-Ibáñez
• Presentation to the
• Transportation Colloquium 2005
• Australia Department of Transport and Regional
  Services
• Canberra, May 18-19, 2005

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OUTLINE

• THE SUCCESS IN SERVICES
• WHY WE TRIED INFRASTRUCTURE
• LESSONS LEARNED
• FAVORABLE CONDITIONS

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SERVICES vs. INFRASTRUCTURE
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SERVICE PIONEERS(PRIVATIZATION OR DEREGULATION)

• 1960s DEVELOPING COUNTRIES BUSSES
• 1970s CHILE TRUCKING, OCEAN AND COASTAL
  SHIPPING
• 1978 US AIRLINE DERGULATION
• 1980 US RAILROAD AND TRUCKING DEREGULATION
• 1980 UK INTERCITY BUS DEREGULATION
• 1986 UK URBAN BUS DEREGULATION

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PRESENT SCOPE OFPRIVATE SERVICES
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INFRASTRUCTURE PRIVATIZATION TYPES AND MOTIVES
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WHY WE PRIVATIZED INFRASTRUCTURE

• THE FAILURE OF SOE REFORM
• THE EVOLUTION OF REFORM
• MEMORANDA OF UNDERSTANDING
• LEFT UNDERLYING SOE POLITICS UNALTERED (LABOR,
  MANAGEMENT, FAVOURED CUSTOMERS)
• CRISES
• MACRO ECONOMIC
• SECTORAL (E.G., BLACKOUTS)
• REVEALED HIDDEN COSTS OF THE STATUS QUO

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THE EXPERIENCE HIGH PROFILE CONTROVERSIES

• ELECTRICITY
• DABHOL POWER PLANT (1994)
• IPPs IN PAKISTAN, INDONESIA, PHILIPPINES (1998)
• CALIFORNIA CRISIS (2000)
• AREQUIPE CONCESSION (2001)
• DOMINICAN REPUBLIC CONCESSIONS (2004)
• WATER
• TUCUMAN CONCESSION (1996)
• COCHABAMBA CONCESSION (2000)
• MANILA CONCESSION (2001)
• EL ALTO CONCESSION (2005)
• CROSS SECTOR
• ARGENTINE DEFAULT AND DEVALUATION (2002)
• TRANSPORT
• BANGKOK SECOND EXPRESSWAY (1993)
• MEXICAN TOLL ROADS (1995)
• RAILTRACK BANKRUPTCY IN UK (2001)
• MANILA AIRPORT (2004)

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NEW INVESTMENT BY REGION 1990-2001 Latin America
Fastest Rise and Fall
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NEW INVESTMENT BY SECTOR 1990-2001 Tel
Electricity Fastest Rise and Fall
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NEW INVESTMENT BY TYPE 1990-2001 Divestitures
Fastest Rise and Fall
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DISPUTES VS. CANCELLATIONS

• RENEGOTIATED CANCELLED
• ( OF CONTRACTS) ( OF VALUE)
• TELECOMS 1 0.4
• ENERGY 5 2.4
• TRANSPORT 74 9.3
• WATER 55 11.3
• (Sources Jose Luis Guasch on renegotiations,
  Clive Harris and John Hodge on cancellations)

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LESSONS LEARNED

• DONT UNDERESTIMATE POLITICS
• IN THE INITIAL PRIVATIZATION
• SOE SALE OR LEASE WORKERS AND
  CUSTOMERS
• CONCESSION FOR NEW INFRASTRUCTURE EASIER
• AFTER PRIVATIZATION
• DRAWN OUT REFORM (E.G., ELECTRICITY)
• REGULATORY DISPUTES

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LESSONS LEARNED

• CONSTRAINTS OF PRIVATE CAPITAL
• PUBLIC vs. PRIVATE CAPITAL
• FOREIGN CAPITAL
• POLITICAL RISK
• SYSTEMS OF REGULATION
• CONCESSION REGULATION THE INCOMPLETE CONTRACT
• DISCRETIONARY REGULATION POLITICAL INDEPENDENCE
  vs INSENSITIVITY
• SUB-SOVERIGN GOVERNMENTS

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FAVORABLE CONDITIONS

• REAL EFFICIENCY GAINS, NOT TRANSFERS
• EFFICIENCY GAINS
• MORE OUTPUT FOR SAME INPUT
• TRANSFERS
• HIGHER PRICES FOR SAME SERVICE
• LAYOFF WORKERS IN WEAK ECONOMY
• COMPETITION OR LIMITED REGULATION

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FAVORABLE CONDITIONS

• FINANCIALLY SELF SUPPORTING FROM USER CHARGES
• SUBSIDIES TO PRIVATE FIRM MORE CONTROVERSIAL
• GOVERNMENT MAY NOT MEET ITS COMMITMENT
• NOT DEPENDENT ON THIRD PARTIES FOR SUCCESS

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IMPRESSIONISTIC PRESCRIPTION
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CHANGING POLICY

• CONVENTIONAL WISDOM (IN CARICATURE)
• 1960s-1970s AGNOSTIC
• 1980s PRIVATIZE SERVICES
• 1990s PRIVATIZE EVERYTHING
• 2000s PRIVATIZE SERVICES
• 2005 VIEW
• SERVICES ALMOST CERTAINLY
• INFRASTRUCTURE SELECTIVELY
• REMEMBER THE COUNTERFACTUAL (SOE)
• REMEMBER THE POLITICS

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FURTHER READING

• SUMMARY OF EXPERIENCE WITH PRIVATE PARTICIPATION
  BY MODE
• Estache and de Rus, Privatization and Regulation
  of Transport Infrastructure (World Bank
  Development Studies, 2000)
• SUMMARY OF EXPERIENCE WITH SOE REFORM
• Galal and Shirley, Bureaucrats in Business The
  Economics and Politics of Government Ownership
  (World Bank and Oxford University Press, 1995)
• REGULATION OPTIONS AND EXPERIENCES
• Gomez-Ibanez, Regulating Infrastructure
  Monopoly, Contracts and Discretion (Harvard
  University Press, 2003)