ASi" kUCTURE FlOR DEVELOPMENT

;t~~1F D ¢- l- e
as is demnonstrated by the successful award of a .con-
Wi an&concesslonsrn ~~~~ cession in Buenos Aires for water and sewerage, in
%ii~fr"i& 6d6i iiarE ,ommoi;.event- contrast to a proposed concession in Caracas that
J~~~~~~~ ::
M$~iSi~4fL~iii~
~iiiiA& t aj r-~ -. failed to attract responsive bids. Buenos Aires bene-
- r. tw~~~~, fited from a numnber of advantages that Caracas did
.. not share, incuding stronger support from govern-
. 3~ -ment authorities, better technical and. financial
econormc risks to investors.
aicnesiAgTi 5.. preparation, more attractive initial tariffs, and lower
In practice, the original frandcisee is rarely dlis-
~. lodged. In Hong Kong, which uses fr-anchising
metlhods extensively for infrastructure provision,
only one bus company has lost its franc-hise in recent
decades. In France, franchises tend to extend
into perpetuity. The incumbent enjoys significant
advantages in rebidding, which must be factored
|:)0 | | , into efforts to make the market contestable.
g E j| B
-< LEASES. Under a lease, the govermnent supplies
the major investments for production facilities, and
-5- j j ~ R a private contractor then pays for the right to use
the public facilities in providing service. A lease
* r 0 wamne- -M M M
_a generally awards the contractor exclusive rights to
r
___f__________t_ ye ____r____ ____ r
- .. the stream of revenues for a period of six to ten
years. The contractor beas most or all of the com-
-Watean - mercial risks, but not the financial risks associated
*jS .-- #.rt- . with large investments. Such arrangements are most
* ;-..~x ~ ~.*** practicable in activities where investments come in
-=& . &.:t.-W.- --T.nfiequent bursts, so that responsibility for operations
can be separated from responsibility for investmenL
In France leasing has been used for
tive to relying on a full-blown independent regula- decades i urban water supply and sewerage, and
tory apparatu. -the model was recently adopted in Guinea (Box 3.4).
tory apparatus. . Leases allow a mix of ownership. l "landlord
L eases and concessions are increasingly common orts, the inin
inffrastructure. Such arrangements arei o p t public authority owns the land and iner.tion
or under implementation i- t.irty-seven frastrurture facilities, while a private finn owns and
erahonor lmlemenatwn uner - thtseven operates the superstructure. In 1986 Malaysia. transcountries,
including eighteen low-income countries operates s the t re In1 Manayiatrans-
(Fgure 3.2). In (Figre transport, ransort .2).In cocessonsare concessions are primarily rhnri~ ferred operation of thie Port Kelang container tenni-
- - . . . , -,. . ~nals and bxerths to two consortia under lease5. The
for large, fixed facilities such as ports and toRl roads. n and berths to o conshe
Concessions are Concessions common conunonmthewatersector.Be
are in sector. Be- facing private the
operators,
public operator,
freed of many
improved
of the
productivity
constraints
cause economies of scale remain important in water
supply, most countries have used mechanisms that sapananalays began such a operacrete
or °mptiton hemaret Iabe 31).Eve -Japan, and Malaysia began a wave of-surch operacreate
competition for the market (Table 3.1). Even tions in Asia-leasing Is now under way in Chima,
among these agreements, there is a wide variety of the Philippines, and ailand and is under considarrangements.ȧrrangements
........ . . ~eration in Korea, Pakistani, and Viet NaL At timnes,
The eff-ectiveness of a franchise arrangement de- eaini oe,Pksa,adVe an ttms
ahe enumer effe of afranctrs.ie incentives fr only parts of the port-such as individual berths or
pends upon a -number of factors.ThEe
pends
incentives
upon
for
. container terminals-are leased, leaving arrangefranchise
holders to operate efficently depend on
. . - . - . . . ~~~~~ments for other parts of. the port unaffected.
the criteria for awardig the franchise, which in
turn vary with sectoral characteristics and govern- CONCEssoNS. Concessions incorporate all the
ment objectives (Box 3.3). The contractual provision features of a lease but give the contractor the added
of services is most likely to succeed when the con- responsibility of investments-such as for specified
tract increases transparency and accountability by extensions and expansions of capacity or for the respecifying
in detail the terms of operation. How the placement of fixed assets. Concession arrangements
contract is awarded is also important to its success, exist for railways, telecommunications, urban trans-
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