Rita Nangia

1
Ensuring Accountability in Infrastructure
Investments
28 February 2006Kuala Lumpur

• Rita Nangia
• Director
• Asian Development Bank
• Manila, The Philippines

2

• Agenda
• Asian Infrastructure
• Status
• Challenges
• New Framework
• Inclusive Development
• Coordination
• Accountability and Risk Management
• Way Forward

3
Major Trends

• Asia is growing rapidly

Source World Development Indicators 2005
4
Major Trends

• Poverty is declining in Asia
• ( 1-day poverty as of total population 2003)

Source Asian Development Bank
5
Asias Challenges .

• Asia is urbanizing rapidly
• (urban population as of total population 2000)

Source Connecting East Asia A New Framework for
Infrastructure
6
Asias Challenges .

• Environmental costs are growing
• 2000 CO2 emissions (metric tons per capita)

Source World Development Indicators 2005
7
Asias Challenges .

• Environmental costs
• 2000 CO2 emissions (kg per US of GDP)

Source World Development Indicators 2005
8
Asias Challenges .

• Access to Infrastructure varies...
• 
  ...Electricity

Source World Development Indicators 2004 World
Energy Outlook 2002
9
Challenges and Opportunities
Access to Infrastructure varies... kwh

...Electricity use per capita
Source Key Energy Statistics, 2005,
International Energy Agency World Development
Indicators Online
10
Challenges and Opportunities

• Access to Infrastructure varies...
• 
  ...Telephone

Source World Development Indicators 2004
Connecting East Asia, 2005
11
Quality of Infrastructure varies
Overall Infrastructure
Source The Global Competitiveness Report
2004-2005
12
Overall Quality of Infrastructure varies
Air Transport
Source The Global Competitiveness Report
2004-2005
13
Overall Quality of Infrastructure varies
Ports
Source The Global Competitiveness Report
2004-2005
14
Overall Quality of Infrastructure varies
Railroads
Source The Global Competitiveness Report
2004-2005
15
Overall Quality of Infrastructure varies
Electricity
Source The Global Competitiveness Report
2004-2005
16
Overall Quality of Infrastructure varies
Telephones
Source The Global Competitiveness Report
2004-2005
17
Average savings and investment ( of GDP
1990-2004)
Source World Development indicators 2005
18
Average savings and investment ( of GDP
1990-2004)
Source World Development indicators 2005
19
Infrastructure requires funding globally

Source World Bank
20
East Asia alone requires more than US200 billion
per annum for infrastructure
21
The private sector bubble has burst
but sentiment is positive
Investment in Projects with Private Participation
Source Connecting East Asia A New Framework for
Infrastructure
22
Private finance is selective
Sectors
Regions
Infrastructure Projects with Private Sector
Commitments 1990-2003Source PPI Database
23
Role of official financing varies by country
Aid dependency in selected countries, East Asia,
2003
Source Connecting East Asia A New Framework for
Infrastructure
24
Who pays for infrastructure?
25
Who pays for infrastructure?
In the first instance, users
In a virtuous cycle, of growth and infrastructure
funds itself
26
Who pays for infrastructure?
In the second instance, users are subsidized by
tax payers
27
Who pays for infrastructure?
Two institutional mechanisms channel the flows -
the state budget, and service providers
Services may be provided by the government, a
state entity, or the private sector
28
Who pays for infrastructure?
Financiers have a key facilitating role
Financing makes it possible to mobilize the
current value of future tax payments
and flattens the cost profile for users over
time
29
Who pays for infrastructure?
Financiers have a key facilitating role
This is the case when finance is concessional, or
takes the form of grants
30
Who pays for infrastructure?
The public and private sectors are complementary
31
New Framework

• Three Broad Approaches to Poverty
• Income or expenditure
• MDG
• Human Capabilities

Inclusive development is about improving the
incomes and lives of all members of the society,
especially poor
32
Inclusive Infrastructure
33
Coordination challenges for developing countries

• 1. Getting infrastructure spending right
• Coordinating investment and financing functions
• Coordinating fiscal space
• 2. Coordinating through decentralized agencies
• Horizontal coordination
• Vertical coordination
• Developing the missing middle
• 3. The special challenge of urban management

34
Accountability and risk management
and how theyre related

• Accountability
• rewarding organizations that consistently
  perform well for their stakeholders (and
  penalizing those that perform badly)
• Risk management
• making risks and rewards commensurate with
  each other, in order to drive good performance

35
Mechanisms to strengthen accountability

• Community participation
• From project selection to ongoing operations
• But likely to be limited to the last mile
• Competition
• Most effective way of bringing accountability
• But East Asia not in the forefront, for a number
  of reasons
• Regulation
• The problem of holding regulators accountable
• Independence is evolutionary

36
Does ownership matter for accountability?

• A poorly-regulated private monopoly performs
  as badly as a poorly-regulated public monopoly
• But the private sector responds better than
  the public sector to good regulation or
  competition

37
THE WAY FORWARD

• Study provides a way of thinking about
  infrastructure issues in different situations
• Not a blueprint or toolkit
• Policy messages reflect concerns raised
  during our consultations
• To improve infrastructure development and service
  delivery

38
Policy Messages

• The center matters infrastructure demands
  strong planning and coordination functions
• Decentralization is important but raises host
  of coordination challenges
• Subsidy is not a dirty word subsidies can be
  important, but are always risky, and should be
  handled with care
• Competition is hard to achieve in infrastructure
  but its the best way to bring accountability
• Regulatory independence matters more in the long
  run than the short run
• Civil society has a key role to play in ensuring
  accountability in service provision
• Infrastructure has to clean up its act
  addressing corruption is a priority

39
Funding Messages

• Fiscal space for infrastructure is critical
• The private sector will come back if the right
  policies are in place
• Public sector reform matters but be realistic
• Local capital markets matter but are not a
  panacea
• Infrastructure needs reliable and responsive
  development partners

40
Holding Executive Accountable .
Electorates

• Interest Groups
• Civil Society Organizations
• Think tanks
• Political Parties
• Media
• External Groups
• Donors
• CPA

• Service commissions
• Regulators
• Supreme audit body
• Judiciary
• Ombudsman
• Legislature

• Final Investment Choices
• Process