ASi" kUCTURE FlOR DEVELOPMENT

Management conitracting
wHEN is Ir Em!Fcnvf? management contr-acting
works better when a contrctor is granted significant
Management contracting gives responsibility for a autonomy in decisionmaking and compensation is
broad scope of opera tions and maintenance to the based, at least. in part, on. performance.. In France,
private sector-usually for thiree to five years. This where management contracts are common in water
approach can be more effective than relying on a supply and sanita tion, the incentive for productivity
performance agreement to achieve similar objec- improvement links the contractor's payment to such
tives. A management contract signed for th-e power indicators as 'reduced leakages and increased concompany
in Guinea-Bissau is demonstrating that nections. The- contract for the Electricity and Water
management contracts may work where many per- Company of Guinea-Bissau specified that 75 percent
formance agreements have failed. Thiere, a new of the remuneration was guaranteed but that the remanagement
team succeeded in doubling electricity maining 25 percent was based on performance.
sales in just three years (Box 2.5).
Management contracts with fees based on perfor-
However, when public agencies prevent a pri- mance tend to be more succesful than those with
vate contractor frorn controlling key functions af- fixed fees-such as traditional management confecting
productivity and service quality-such- as suiting assignments. Fixed-fee arra ngements differ
staffing, procurement, or* publicly provided work- little from technical assistance and are seldom suc-.
ing capital-the contractor cannot be held acoDunt- cessfuL. Relating incentives to performance may not*
able for overall performance, and generally the con- work, however, where a government can interfere
tract does not succeed. That is why a recent withi tariffs. In general, such contrxacts tend to be
management.contract signed for a power plant in~ more useful as interimn arrangements allowing prithe
't
Philippines
t'
failed within nine months. When the vate firms and public agencies to gain
unai
experience
new. managers and the governmuent disagreed on withi partnerships before engaging in mare compre-
*staffing levels and composition, the contract was hensive contracts or while the regulatory framework
broken despite the rapid improvemnents observed in is being develope-d (both discussed in Chapte-r 3).
maintenance following the arrival of the new man- A recent innovative application of management
*agement team. contracts is the experience with Agences d'Execu-
::'~~~~Fe
Box 2.5 Management contracting in Giiinea-Bissau-a success story?
Introducing a five-person mnanagement team under a The foreign management cpntract was implemented
foreign mnanagement contract improved the perfofnance under a joint Initiative of the French Mfinistry of Cooperof
Guinea-Bissau's national electric utility. Previously, ation, the United Nations.Development Progrmmue, the
service interruptions had been chronirj and most' areas Afri'can Developmenit Bank, and the World Banik. Itr-mhad~
elctricity only a few hours a day. Comnpara tive sta- duced wastage of foDreign aid.. (n the previous ten years.
-tistics for 1957 and 1990 shovw the turnaround.. But more foreign aid for power was more than three times the estirecent
experience illustrates the difficulties of manage- mted value of the utility at the.end of the.period.)
ment-government relations.
At the begitnniing of 1994. however, seriousi problemns
became evident. Despite economic tariff~ the utility was
Box table 2.5 Performancoe of Cufinea-Bissau's
unable to generate revenue to finance expansion~-or
national utility electric
. ~~~~even, at times, current operations-leadin agin to
Indictor 1987 1990 1993 ~~~~shortages and reductions in service quality. This precari-
Installed (megawatts) capacity 72 ~ous finandal.condition was due to a large rise in receiv-
Operable capacity(megawatts)
fl 73ables stemming fromi the utility's difficulty in collecting
Capacityfacor (percent. 32 51 42 payments. The goveffnirent demnanded continued sercuo
xnsumnptin (kilograms
vice for 'critical' functions even when.isupi bills
per l ott-hour) 0300 0.254 0275 wr causg financial disr-es And ira the perivate sec -
Syst losses (percent 30 26wr 24 tor fiiudulent connectons were rampant despite the
Electrucity-sales (millions of -
utinty's efforts to prevent them.
keIlowatt-hours)
Average, revenuwe (dollai
14 28 27.
- per ki]owatt-hour) 0.12 0.25 .0.22
44