ASi" kUCTURE FlOR DEVELOPMENT

vices. These concerns are particularly prevalent in Performance agreemcn2ts
Africa and South Asia, where reorganizations of
public utilities and goverunment departments have Performance agreements negotiated between govbeen
common but where performance has often re- emment (the enterprise owner) and managers have
mained disappointing. Latin American countries been tried in most infrastructure sectors. This type
have prefenred a more fundamental shift to pnvate of agreement onginated in France, where the main
ownership (Chapter 3).
purpose was to spell out reciprocal commitnents of
The introduction of market principles can help govenment and managers. Korea, which was
solve the problem of corporate govemance. For its among the early Asian users of performance agreepart,
government must allow adequate competition, =ments, added explicit performance-based incentives
level the regulatory playing field, and instruct man- for both managers and employees. The focus on inagers
to maximize profits or to achieve set. rates of centives.is what most recent contracts are trying to
return. Although effective in the long. run for some duplicate...
sectors and some services, this solution raises at
least two problems.. First, and more obvious, pro- REVEALING INFORMATION TO IMPROVE THE FOCUS. In
viders in many cases are in the public sector pre- order to identifv the sources of incentive failures,
cisely because of the limits on profit maxiiiza- govermnents.must develop information and evalution-either
because the services are public goods ation systems for performance monitoring. The in-
(as with roads) or because governments have objec- formation component focuses on the development
tives other than profit. Second,.because service of standard financial and cost-accounting proce-.
providers have monopoly powers, prices have to dures, as well as detailed quantitative and qualitabe
regulatedc outside the supplying entity (see tive. indicators. In roads, for example, these indica-
Chapter 3).-
tors include measures of the condition of the
When the market solution cannot be used to ad- network and its use and management, admhnistradress
corporate governance problems in the public. tion and productivity, and finance. The negotiation
sector, three.other approaches miight be considered of a performance agreement covering most of these
for structuring the relationship between govern- indicators has allowed the HIghway Department of
ments and infrastructure providers..
the State of Santa Catarina in southern Brazil to
P r aee retain al dcso in . ..................... sharpen its objectives. The result is that priorities
Perfornmace agreemnents retain all decisions m hv hne n ou oeo aneac n
the public sector. They try to increase the account- have changed and focus more on maintenance and
ability of employees and managers and to*
rehabilitation of roads than they have in the pasL
abilty or emnployees and managers and to improve
the
the
focus
focus
of
of
operations
operations by
b. clarifying
clarifying
pe.
performance.--
,Specific orinance
targets have
--
been set for all categories of ex-
expectations and the roles, responsibilities, and re penditure. The share of paved roads i poor condiwards
of all those involved. ~ - tion is expected to decline from 18 percent in 1991 to
4 percent by the end of 1994. Staff needs and skills
Manage7ne12t con2tractstrnEropvaer-
i
-de respo the t fr managin g private - have been assessed, supporting a reduction in
viders the responsibfllty for managmgz an operation--- -
an opera,ti workers from 3,149 in 1990 to 1,885 in 1993. Ahready
such as a port or a power or water utly Thyisucrasethe
auportonapomy m of agenty andreducether m- 10 percent of all maintenance work is contracted out
crease the autonomy of management and reduce the - -
risks of political interference in the day-to-day oper- to the private sector-and the performance abgree
ations of the public entity- ment requires an increase to 25 percent by 1995.
- Service contracts transfer to private providers Simflar reforms are being introduced in the states of
*Service aoufmcts transfer to private providers ._ ...- -
s
the responsiblfity for
,.
delivering
, . .,-
a spedfc
.
service
. hS~~~~aranh5o,
at
Piaui, and TocanEns.
lower costs or obtaning specific skills or expertise B - Nc
.. - . . . . , . . ~~~~BUILDING IN INCENTTVEs. This component has sevlacking
in the public sector-such as design engi& e
neering. (Turning all operations over to the private m gal autonomy forst enterprise as welleas
sector under a lease or concession is discussed in renaris wk for a mnaersnsexange fo
Chapter - 3.) . ~~~~~rewards for worlcers and managers in exchange for
Chapter 3..
fulflling agreed performance targets Some agree-
-Properly designed, these contracts can address ments in India, Korea, and Mexico iiclude bonuses
organizational failures. And they can be just as ef- of up to 35 percent of total wages. The Koreans confective
in a public works departnent as in a public sider nonpecuniary benefits-such as award cereutility.
Many governments are attracted to such con- monies or press coverage-to be a key factor in
tracts because they do not involve relinquishing their success witlh contracts. Firing nonperforming
public ownership.
staff is one of the sanctions available in Korea (Box
-42