REFORMING INFRASTRUCTURE

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REFORMING INFRASTRUCTURE
  Privatization, Regulation, and Competition
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PROFOUND REASSESSMENT OF PUBLIC POLICY TOWARDS
INFRASTRUCTURE

• OLD MODEL NEW PARADIGM
•  
• STATE OWNERSHIP PRIVATIZATION
•  
• MONOLITHIC ORGANIZATIONS UNBUNDLING
• (VERTICAL INTEGRATION) REGULATORY
  REFORM

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WHY THE FOCUS ON INFRASTRUCTURE?  

• SERVICES ESSENTIAL TO THE ECONOMY
• EFFECTS ON FDI
• IMPACT ON GRASS-ROOTS ENTREPRENEURSHIP

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PROBLEMS WITH THE OLD MODEL

• UNDERINVESTMENT
• UNDERPRICING/REVENUE INADEQUACY
• HIGH COSTS
• LOW PRODUCTIVITY
• POOR SERVICE QUALITY
• LONG QUEUES / SHORTAGES
• THEFT OF SERVICE
• POLITICAL INTERFERENCE
• LACK OF TRANSPARENCY

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BRAZIL TELECOMS QUALITY INDICATORS
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PROMISES OF NEW PARADIGM

• INCREASED INVESTMENT
• COST-REFLECTIVE TARIFFS
• IMPROVED INCENTIVES FOR EFFICIENCY
• ACCESS TO SUPERIOR MANAGEMENT
• IMPROVED SERVICE QUALITY
• POLITICAL INSULATION
• GREATER TRANSPARENCY

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PREREQUISITES OF EFFECTIVE PRIVATIZATION

• A SUITABLE SET OF INSTITUTIONS, A SUITABLE
• LEGAL SYSTEM, AND A COUNTRY-SPECIFIC STRATEGY
• MARKET-FRIENDLY INSTITUTIONAL FRAMEWORK
• A MICROECONOMIC STRUCTURE OPEN TO COMPETITION
• AN EFFECTIVE SYSTEM OF REGULATION

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CHARACTERISTICS OF DEVELOPING COUNTRIES

• LACK OF INSTITUTIONAL CHECKS AND BALANCES
• LOW GOVERNMENT CREDIBILITY
• HIGH INCIDENCE OF CAPTURE AND CORRUPTION
• SCARCITY OF TECHNICAL EXPERTISE
• POOR AUDITING TECHNOLOGIES
• INEFFICIENT TAX SYSTEMS

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OUTCOMES OF PRIVATIZATION/RESTRUCTURING 

• GROUNDS FOR CAUTIOUS OPTIMISM
• GAINS IN OPERATING EFFICIENCY
• INCREASED INVESTMENT
• SOME TAFIFF REBALANCING
• DISTRIBUTIONAL CONCERNS

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 RAIL LABOR PRODUCTIVITY IN BRAZILBOLIVIA AND
ARGENTINABEFORE AND AFTER CONCESSIONING (000
TU/EMPLOYEE)
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LABOR PRODUCTIVITY OF THE DISTRIBUTION/SUPPLY
BUSINESSES IN BRAZIL, 19912000
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DISTRIBUTION LOSSES IN ARGENTINA, AT
PRIVATIZATION AND IN 1999
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Public Opinion on Privatization in Latin America,
19982002
Percentage of respondents disapproving
Source Latinobarometro 2002.
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CHARACTERISTICS OF EFFECTIVE REGULATION 

• COHERENCY
• INDEPENDENCE
• ACCOUNTABILITY
• TRANSPARENCY
• PREDICTABILITY
• CAPACITY

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PROGRESS TOWARDS REGULATORY EFFECTIVENESS 

• RECORD DECIDEDLY MIXED
• INDEPENDENCE FREQUENTLY COMPROMISED
• LACK OF COHERENCY
• LACK OF TRANSPARENCY
• WEAK CAPACITY

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DESIGNING REGULATORY MECHANISMS IN THE DTEs 

• THE INSTITUTIONAL ARCHITECTURE DEBATE
• ONE MODEL DOESNT FIT ALL
• THE SEARCH FOR ELEGANLTY SIMPLE REGULATORY
  MECHANISMS
• IMPROVING THE INVESTMENT CLIMATE THE
  IMPORTANCE OF REGULATORY COMMITMENT
• CREATING REGULATORY INSTITUTIONS IS NOT
  ENOUGHGETTING THE ECONOMICS RIGHT

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An Agenda for Policy Action and Research

• Pricing reform
• Access to bottleneck facilities
• Regulatory dynamics
• Guiding principles for public utility
• regulation

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LESSONS LEARNED

• Combination of institutional reforms--privatizatio
  n, restructuring, effective regulationhave
  improved infrastructure performance
• Investmentone of the key goals of
  restructuring--has increased substantially
• Service coverage has increased
• Fears that restructuring would hurt the poor
  largely unfoundedreforms have often delivered
  biggest benefits to poor households

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LESSONS LEARNED(Contd)

• Privatization no panacea
• Different sectors and countries demand different
  reforms
• Credible regulation is essential for
  privatization to achieve its public interest
  objectives
• Complexity of second generation regulatory issues
• Commitment versus flexibility in regulatory
  architecture

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LESSONS LEARNED(Contd)

• Problems of unbundling/introducing competition
• Balance competition advantages and integration
  synergies
• Access to bottleneck facilities is crucial
• Regulation should foster competition
• Benefits of reform cannot be sustained without
  cost-reflective tariffs

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LESSONS LEARNED(Contd)

• Complexity of pricing reforms
• Creating effective regulatory institutions is a
  major challenge