ASi" kUCTURE FlOR DEVELOPMENT

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-~ ~ ~ ~ ~ ~ 7 -- port systems, anda water adtetnit supply to fteBeo ie uwysse a fee SODECI, the .private water company in C6te under a concession and awarded on the basis of the d'Ivoire, has a well-established and successful con- lowest subsidy demanded to operate and invest in cession contract (Box 3.5). . the system. Highway maintenance has also been -Argentina has recently-had a flurry of concession opened to concessions, and it is funded by reveniues arrangements, some of which were made possible from tolls initiated on many highways in 1992. by prior sectoral unbunidling. In addition to the rail A possible problem with leasing and concession and water concessions described above, the opera- arrangements is that they may not provide suff_- 61
short-mn gain and skimp on routine maintenance. Most of these problems can be avoided. Expli4t maintenance requirements can be written into contracts, and compliance can be monitored. Private dent incentives to maintain and expand the facilities in their charge. A private supplier that does not own the production facilities or is uncertain of contract renewal may depreciate assets rapidly for Box 3.3 Tailoring concessions to sectoms and government objectives The method of awarding concessions or the right to op- depreciate considerably. But because trucks can be sold erate is extremely important in determining the incen- more easily than assets underlying roads and power tives to private sponsors. When the returns to the spon- plants, the contract period may be as short as several sor. are unrelated, or only wealdy related, to the months. performance of the operation, the benefits of private= Ar. interesting variation is used in telecomnmunica-. sponsorship are forgone. tions, although it could be applicable also for indepen- The goal is to ensure an attractive financial return dent power projects. The focus is not on the length of the for investors while safeguarding public interests. One concession period, which can be indefinite, but on the key element of negotiation is the price the investor period of the exclusive concession. In Mexico and Arpays for the right to operate the service-or the extent gentina, the newty privatized companies have been of capital or operating subsidy that the govenmuent granted exclusive licenses for six to ten years, during may provide. Other negotiating points are the price which they have certain investment obligations. After that will be charged for services, the concession period, the exclusive period, the government is free to allow and the rights and obligations at the end of the contract new entrants. period; The method of chlarging for the right to provide ser- This is a complex brew, with each element depend- vice can take different fonns. In theory, it is most efficient ing on another. There is always a danger that the terms to award a concession to the bidder who offers the of a concession will allow investors to secure too high a largest lump sum up fronL Having paid a large initial rate of retur, or will fail to provide sufficient incentives fee, the operator will be motivated to operate the fadlity for proper.maintenance of the assets and provision.of in themostefficientmanner. For large projects, however, services. where project costs and revenues are uncertain, revenue- To simplify matters, certain nonns and conventions sharing or profit-siaring arrangements can spread the have been adopted. The length of concession periods is risk (as in the Guangzhou-Shenzen highway in China). typically related to the life of the underlying asset For Where the govermment sees itself mainly as a guardian example, thirty-year concessions are common for toll of consumer interest it may choose to receive no fee but roads, and fifteen years is common for power generation to awsard the contract on the basis of the lowest price pxrects (although for hydroeectricprojects, tiirty years charged to the consumer (which can later create probis more likely). Contracts for solid-waste disposal are in lems with quality of service and requires spedfication of the range of four years, a period in which garbage trucks mnirmum service standards). Box 3.4 Success of a lease contrat-Guiinea'swater supply When the Republic of Guinea's water supply sector was To make sure the necessary tariff increases wvould be restructured in 1989, it was one of the least developed in affordable, the Guinean lease contract included an inno- West Africa At that time a new autonomous water au- vative cost-sharing arrangemenL Under the agreement thority,SONEG, took over ownership of the urban water nroega.ed by the government, the two sector entities, supply infrastructure and assumed responsibility for and the external financier (the World B3ank, the consector planning and investmenL SEEG, 49 perent gov- sumner tariff was to be adjusted gradually from the first ermnent-owned and 51 percent owned by a foreign con- to the tenth year of the contract During this period the sortium, was created to operate and maintain the sys- World Bank agreed to assume a declining share of the ter's facilities. foreign exchange expenditures of operation, and the cen- Under* the ten-year lease contract signed with tral government covered a declining share of the debt SONEG, SEEG operates and maintains the system at its sennce. By the tenth year tariffs were expected to cover own commerdal risk. Its remuneration is based on user the full cost of water. Tariff imcreases have to date excharges actually collected and fees for new connections. ceeded the planned schedule, rising from 50.12 per cubic SEEG also benefits from improvements it achieves in the meter in 1989 to about 0.75 in 1993. Despite higher tarcollechon ratio, from reduced operating costs, and from iffs, the collection ratio for private customers has inreductions in unaccounted-for water. Since SONEG has creased dramatically-frrn less than 20 percent to more ulftimate responsibility. for capital financing, it has strong than 75 percent in 1993-and technical efficiency and incentives to seek adequate tariffs and to make prudent service coverage have improved. investments based on realistic demand forecasts. 62
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... ..... Oxford University Prss :O
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-: .- : 7 - A- - .~ g ------ Vry. _
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. 6 Setting priorities and implemen
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3.1. Contractual anrangements for p
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Because of changes in GNP per capit
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- - Infrastruckure's roleand record
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L ~ ~ ~ ~ ~ ... ~ ~ ~ ~ ~ C- l' __
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Diagnosing the causes of poor perfo
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private sector have evolved. Port f
Page 21 and 22: tradability of infrastructure servi
Page 23 and 24: fits. The way ahead is one of 'cont
Page 25 and 26: Eior - 1 a iX for. - '1~t'*%~ E 6 -
Page 27 and 28: ;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~W.:-
Page 29 and 30: BoxL12 The importance of infrastruc
Page 31 and 32: and reliability, as well as on quan
Page 33 and 34: Expansion of transport infrastructu
Page 35 and 36: Roads are not private goods, althou
Page 37 and 38: Table 1.3 Expansion of infrastructu
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Page 41 and 42: pie of Latin American water utiltie
Page 43 and 44: straint to their mobility (Figure 1
Page 45 and 46: Box 1.7 Infastiucture activities ti
Page 47 and 48: * Option A: Public ownership and op
Page 49 and 50: Lessons of success and failure mana
Page 51 and 52: -~~~~o 22, -Svrac pa eae layoffs tt
Page 53 and 54: vices. These concerns are particula
Page 55 and 56: Management conitracting wHEN is Ir
Page 57 and 58: - :. : : . - I- ~~*r~ 4.~ accounts
Page 59 and 60: The best way of reducing the gap be
Page 61 and 62: the high rates of return for mainte
Page 63 and 64: l:: :: . - : 0~ ,aSn- ::~~~i /W-#H
Page 65 and 66: egional gas distributors, and an en
Page 67 and 68: 5 : zFigre3C4mnbndbgl atvitie ices
Page 69 and 70: Helped in part by sectoral unbundli
Page 71: ;t~~1F D ¢- l- e as is demnonstrat
Page 75 and 76: Table 3.2 Value of infrastructure p
Page 77 and 78: Box 3.6 Telecom piivatizati6ci the
Page 79 and 80: Box 3.8 Regulation and privatizatio
Page 81 and 82: private management can become compl
Page 83 and 84: this chapter shows, where regulator
Page 85 and 86: transport ministries in Africa is o
Page 87 and 88: Unlodking local effort through- dec
Page 89 and 90: Box 4.3 Power in Purang and roads i
Page 91 and 92: ->W>
Page 93 and 94: way of achieving distributional obj
Page 95 and 96: are bundled into low-cost loans to
Page 97 and 98: powerful minorities can capture the
Page 99 and 100: to this purpose without sacrificing
Page 101 and 102: found that although households were
Page 103 and 104: 4 I~~~Z Box46 W canbenefitftbm ibut
Page 105 and 106: I Box. 4.9 Icroaigenviironmental. c
Page 107 and 108: . ............ --S - Financigneeded
Page 109 and 110: Box 5.1 Is there a free lunch?-limi
Page 111 and 112: Box 52 Tapping international capita
Page 113 and 114: 1~~~~D Clt ,-,.Re -b cope an tie 0
Page 115 and 116: V Box 5A A successfl-firtt step in
Page 117 and 118: change risk through the passing on
Page 119 and 120: Box 5.8 Look before you leap: limit
Page 121 and 122: poor financial discipline, and subs
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'sv,t-za6oapioceeds (billions of VS
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-~ f4' * ; ylkj XtLSidolkits.(1. -~
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.*,mmr ''', '- ' f - .,__ -, 6.. -.
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Box 6.1 Ingedientr. of good peromne
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government and e strength of the co
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= -ableb 6.Te tspbrhivaof jrnte' sc
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elements of natural monopoly and mu
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solid waste disposal through metrop
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portant that uinstituitional activi
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V-~~~~~~ : ~~~~ :: . = .-s Bibliogr
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on. grwh once more sophisticated ec
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structure and explain the importanc
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1993, Drtze and Stern 1987, Goldste
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Ailken, J., G. Cromwell and C. Wish
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Easterly, William and Sergio ReWo.
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Paul, Samuel. 1991a. -Accomitabilit
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Shirley; Mary and John Nellia 1991.
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*:: Appendix: Infrastr cture data T
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Piual aolai Ekd rkrilytarnyftig' nz
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*TLqdqmrc Main (rsRaiilwad tracks I
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*Teplephmein lines Railnnd tmcts rs
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Acress to safe drIPAIng zmfer Acem
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Table AS3 IBRD and IDA commitments
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* ;;\ * i Contents Key 154 Introduc
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mairking Popzdaliou: hrf htt Total
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.~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~I .- In
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into the following broad areas: pro
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: - .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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Pqm&uem Airs GN'perafii -AY an!A Uj
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GDP AgmIrflun"y Alatmqjrmd Senrrk.
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Disurihhhiuuefgrmd dmndprSarrf 11 G
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Frnltioirruapm Food pnafaai fndia $
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E-wapro&d-rrm &-VWrvaimdVf Penwifr
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Drnbmdnlnfmafaaummtwdwhirdalf%J 197
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73 Ukraine.. ... 74 Algeria ~~~~~-.
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Gewmt~ ~ Awgsaagsns 1 1970-80 *fl3)
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Aimor GOUANWnk Gniadonmk piomm cama
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D!~~me. MasSe limit ~~mar.w-fftw sf
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Perauagrq JwL node riseiiv swim na
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19M410 1.931-9 Sm 193 199 I93-92 PM
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hfar~uNzr,,~r(udWrnSIAwwunqem-fgmi.
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0hsrpflra Maudhmer& Dinf B21) 1992
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P---rAgetrefurerd.ds&rcpans FiEs. n
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73 Ukruin 339 10.3 33.0 3.2 IDA) 43
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MD3 599 197f 19 197) 199 ami 1992 i
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OECD Net bilatral flows to 1ew4ineo
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~~~~~~~Fcquaa MSraefMIm Par iS&f WV
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TowdrreTaRr -- Inc~~t mz2 ]m im mm
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Dbimnsuzm pulEIMS) RqrsYWwsefpdnr4u
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* ~~~~~~~~~~~~~ToAd njinuc Net FDI
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Wpram agwofamdamrsdddirm S of~~~S.f
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Caiwhssu ~~~An iwqr6atwe A-ragromaB
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Tot 1.iS. 1lj9muksud Awiugnwf-guw*
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Cnd&bin CswkdtmuhArifuve rno fjrIUA
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1970 199 1971 POO0 199 1970 1992 1O
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_ _ __ _ _ _ _ _ _ * A~~~~~~~~ifm a
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Luje'ecam=rurabt @vs A&J a(nionrper
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PPPEJrImE4fGNp Tar Is seon N i Fe I
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M%qainl in. Elm arrarein 1992.. 5 %
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ParTr TdecImUmfaIUkdIS Pawr,! at Wa
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Taunt iFemifirnms Fwstr,srsuahmrd.
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E000 *t Technical notes' The main c
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practical and conceptual difficulti
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ties, and any statistical discrepan
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ily workers, they exdude homeworker
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and bxes not allocable to other cat
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derived from shorter-term stays are
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table, goods and services include w
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aise the isk of infant mortaliyand
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Columns 2 thrugh 7 give the shares
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the ICP Phase IV report, World Comp
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mation explicitly excludes decade-l
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t 1 Classfiction orec"onomuies by i
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Part 2 Clssfcation of economies by
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