infrastructure management: public and private roles
TRANSCRIPT
Infrastructure Management: Public and private roles
Céline Kauffmann,
Senior Economist
Regulatory Policy Division
Public Governance and Territorial Development Directorate
OECD
PERQ-OECD WORKSHOP ENHANCING REGULATORY QUALITY: INTERNATIONAL
EXPERIENCE AND SOLUTIONS FOR VIETNAM Hanoi, October 2011
1 Infrastructure needs
4 OECD Policy Support
2 Private investment in Infrastructure: key facts
3 Making it work: lessons from international experience
Vietnam investment needs
• Ministry of Planning & Investment: investment capital needed to develop essential infrastructure systems is around $15 to 16bn/year. Available capital satisfies only 50-60% of this demande.
• High level of public infrastructure investment (some 10% of GDP)…
• …but important inefficiencies: poor master planning and project design & selection (financially non-viable projects), poor management and supervision capacity, burdensome regulation (procedures & time), questionable investors protection.
• Particular concerns: transport (roads and ports), and electricity .
Infrastructure score (ranking in brackets / 142)
0 1 2 3 4 5 6
Malaysia
Thailand
China
Indonesia
India
Vietnam
Philippines 105
90
89
76
44
42
26
Source: 2011 WEF Global Competitiveness Report
Quality of infrastructure (ranking / 142)
0 20 40 60 80 100 120 140
Quality of overall infrastructure
Quality of roads
Quality of railroads
Quality of ports
Quality of air transport
Quality of electricity supply
Source: 2011 WEF Global Competitiveness Report
Private investment in infrastructure (1990-2010)
0 20,000 40,000 60,000 80,000 100,000 120,000
China
Philippines
Malaysia
Indonesia
Thailand
Lao
Vietnam
Cambodia
Source: World Bank PPI database
Private investment projects in Vietnam (1994-2010)
49%
3% 12%
3%
3%
21%
9%
Number of Projects
Electricity
Natural Gas
Telecom
Airports
Roads
Seaports
Treatment plant
Source: World Bank PPI database
25%
19% 33%
0%
2%
16%
5%
Total Investment
Types of private investment projects (1994-2010)
Source: World Bank PPI database
0
2
4
6
8
10
12
14
16
18
Energy Telecom Transport Water and sewerage
Management and lease contract
BOT for new facilities
Divestiture
Concession
1 Infrastructure needs
4 OECD Policy Support
2 Private Investment in infrastructure: key facts
3 Making it work: lessons from international experience
Key facts – Although public ownership and management remain the
norm, most countries have had some experience with involving the private sector in financing and managing infrastructure, with in some instances mixed results.
– Massive infrastructure investment needs coupled with budget constraints make PS involvement an attractive option for governments.
– Increasing competition across countries and sectors to attract private investors.
– Increasing diversity of private actors: emergence of regional players, new businesses, mixed companies.
– Diversity of risk-sharing arrangements from full private to full public ownership, depending on levels & nature of risks.
Infrastructure investment through PPPs in OECD
(2010)
Range N Country
0% - 5% 10 Austria, Germany, Canada, Denmark, France, Lithuania, Netherlands, Hungary, Norway, Spain
>5% - 10% 7 United Kingdom, Czech Republic, Slovak Republic, Greece, Italy, South Africa, Ireland
>10% - 15% 2 Korea, New South Wales
>15% - 20% 0
>20% 2 Mexico, Chile
Total 21
Diversity: the case of WWS (% of pop)
% PSP Water % PSP Sewerage
Austria 7 0
Belgium 3 10
France 74 Veolia: 39% - Suez: 19%
55 Veolia: 26% - Suez: 18%
Germany 21 (RWE: 16%) 18
Hungary 29 27
Italy 40 (ACEA: 16%) 29
Lithuania 0 0
Netherlands 0 10
Norway 6 0
Poland 3 3
Sweden 1 1
Switzerland 0 0
UK 88 (> 17 private utilities)
90
Sources: Pinsent Masons Water Yearbook 2009-2010, Veolia, Suez, ACEA, RWE
Recent market entrants, ex from water
Categories Examples
Emergence of local players • Manila Water
Diversification into water of co with core business elsewhere. Boosted by dynamism of BOT in treatment plants, concerns over resource scarcity.
• Desalinisation projects (GE, Siemens). Trading companies offering treatment systems, developing integrated services (Hyflux). • Increased involvement by construction firms and big users such as beverage and mining companies (Nestlé, Coke, Penoles)
Expansion by established water operators
• Local private operators taking over other projects internally or externally • Public companies acting in a commercial fashion and venturing into market (Vitens + Rand Water in Ghana, ONEP in Cameroon).
Joint venture: Combining public & private capacities
Saltillo (Mexico) - SIMAS is a mixed company constituted by the municipality & Agbar.
Graduation of small-scale APWO (Uganda)
Source: OECD (2009), Private Sector Participation in Water Infrastructure,
OECD Checklist for Public Action.
Contractual arrangements (Gov/Private)
Service contract
Management contract
Affermage / Lease
Concession BOT Joint
venture Divestiture
Asset ownership
G G G G P/G G/P P
Capital investment
G G G P P G/P P
Commercial risk
G G Shared P P G/P P
Operations / Maintenanc
G/P P P P P G/P P
Contract duration
1-2 yrs 3-5 yrs 8-15 yrs 25-30 yrs 20-30 yrs Infinite Infinite
Source of retribution of operator
Municip
Municip: fee is fixed or based on
performance
Operator collects user fees. Lease:
municip. pays fee.
Afferm: rev. shared
Users Municip. Users Users
Occurrence 1991-2009
(WB PPI Database)
Not part of scope
Together: 111 of 715 projects
278 of 715 projects
294 of 715
projects
Not a separate category
32 of 715 projects
Complexity of infrastructure sectors
Capital intensive, high fixed costs, long-
term investments, technology-specific,
inelastic demand, low returns and important
asymmetry of information.
Monopolistic
Essential for life
Basic need, important externalities on
health, gender equality and environment.
Essential input for business.
Risky Commercial risk, contractual risk, forex risk,
sub-sovereign risk, risk of capture by
vested interest.
Many stakeholders and
segmentation
Public sector, communities, users,
employees, private sector, donors, NGOs.
Responsibilities split between ministries &
across national, regional & local authorities.
Argument for PPPs
• Private sector has greater incentive and ability to manage infrastructure & deliver services cost effectively.
• Private sector brings the attention to cost recovery, which may encourage faster construction and better continued maintenance over the contract life of the assets
Weaker arguments:
• Fiscal constraint coupled with
• Perceived infrastructure deficits inhibiting growth
1 Infrastructure needs
4 OECD policy support
2 Private Investment in infrastructure: key facts
3 Making it work: lessons from international experience
G
“Good” environment for PPPs
“Good” contracts
Incentive Risk-
sharing Value for
money
Institutional
framework
Macroeconomic
stability Legal & regulatory
framework Competition
Making private participation work
1. Ground the selection of PPPs in “value for money”
2. Building institutional capacity at all levels of government to ensure value for money – role of PPP units.
3. Competent, well-resourced regulatory authorities
4. Financial sustainability over the life cycle of projects
5. Affordability for government: integrity and transparency of budget process
Overarching good principles
1- Assessing value-for-money • a complete cost-benefit analysis of all alternative
provisions methods available to both the government and the private sector (most complex)
• calculation of a public sector comparator before the bidding process to assess whether or not public-private partnerships in general offer better value-for-money (e.g. South Africa)
• calculation of a public sector comparator after the bidding process to assess whether or not a particular public-private partnership bid offers better value-for-money
• the use of competitive bidding process alone without a comparison between public and private provision methods (e.g. France).
21
Risk Distribution is key for VFM
Source: E. Farquharson, PartnershipsUK
Govern
men
t Pri
vate
Secto
r
Design & construction
Service provision
Maintenance & renewal
Quality of service
Volume
Force majeure
Obsolescence
Regulation/policy
Design & construction
Service provision
Maintenance & renewal
Quality of service
Volume
Public Procurement PPP
Force majeure
Obsolescence
Regulation/policy
Types of PPP arrangements vary depending on degree of involvement (and risk sharing) of private sector
Mapping forms of PS involvement
Publicly owned, financed & operated
Publicly owned & financed; operated by the PS
Publicly owned & regulated; financed & operated by PS
Owned, financed & operated by PS; regulated by the public
Fully subsidized Project cash flows Generates profit
Massive capex Investment requirement Min capex Fre
e r
igh
ts
P
ub
lic p
erc
ep
tio
n S
erv
ice p
aid
for
S
ocia
l eq
uity
perc
ep
tion
Source: Adapted from William Streeter (2011). The quest for sustainable infrastructure finance
2 – Catalysing expertise: PPP Unit
Organisation set up with full or partial government aid to ensure necessary capacity within government to create, support and evaluate multiple PPP agreements.
Table 0.1. Is there a dedicated public-private partnership unit at the
national level?
Number of countries
Countries
Yes 17 Australia, Belgium, Canada, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Netherlands, Poland, Portugal, United Kingdom
No 12 Austria, Finland, Iceland, Luxembourg, Mexico, New Zealand, Norway, Spain, Sweden, Switzerland, Slovak Republic, United States
Note: No data for Turkey.
Arguments for setting up a unit
• Pooling expertise and experience within government,
• Appropriate budgetary consideration of projects
• Standardisation of procurement procedures
• Separation of policy formulation and project implementation
• Demonstrating political commitment and trust.
The location of PPP units
Three models of dedicated PPP units:
1. Locate it within the regular departmental structure of the Ministry of Finance (UK, Victoria [Australia] and South Africa).
2. Locate it as an independent government agency that collaborates with a secretariat in the finance ministry (or equivalent).
3. Locate it in an individual line ministry that is predisposed in its functions to use PPP, such as an infrastructure ministry.
Functions
• Policy guidance on content of legislation; eligible
sectors & PPP methods; project procurement & implementation processes; procedures for conflict resolution.
• In some cases (UK, Victoria, South Africa), green lighting projects. In Germany & Korea, the Ministry
of Finance fulfils this role, because the unit is independent.
• Technical support to government organisations
during the various stages of project identification, evaluation, procurement, contract management.
• Capacity building including training to public sector
officials interested or engaged in PPPs.
Budget and staffing, 2009
Country Number of staff Approximate annual budget Funding source
Partnerships Germany 21 n/a User charges
PIMAC, Korea 77 KRW 17 065 million (EUR 9.56 million)
Government budget & user charges
PPP Policy Team, United Kingdom
13 No discrete budget Government budget
Partnerships Victoria 12 No discrete budget Government budget
National Treasury PPP Unit, South Africa
20 ZAR 35 million
(EUR 3.1 million) Government budget
Case: Korea
• PPPs = initiatives involving public & private sectors to provide infrastructure and public services
• Sept 2009 = 569 projects (203 BTO & 366 BTL)
• Establishment of the Private Infrastructure Investment Centre of Korea (PICKO) in 1999, renamed PIMAC (Private Infrastructure Investment Management Center) in Korea Development Institute, in response to:
– lack of expertise within government to develop and evaluate PPP;
– lack of transparency, complicated procedures, unattractive risk-sharing arrangements & insufficient incentives
3 - Regulatory authorities
Progressive trend towards contracting-out & liberalisation has combined with establishment of independent regulatory agencies
The diffusion of regulatory agencies in 36 countries & 7 sectors (Gilardi et al, 2006)
Water regulatory framework in Asia Bangladesh No
Cambodia
No. sectoral responsibility for piped water supply in urban areas is with the Ministry of Industry, Mines and Energy while the Ministry of Rural Development handles rural areas and point sources.
China No
India No, but creating a regulatory agency has been discussed.
Indonesia
Yes. The Jakarta Water Supply Regulatory Body commenced operation in 2001 but with limited powers. The Jakarta concessions foresee regulation by contract.
Malaysia Yes. National Water Services Commission (SPAN) .
Nepal
No effective regulatory system. The government has statutory power to safeguard consumer interests but enforcement has been ineffective because the government is also the service provider.
Philippines
Yes, MWSS-RO oversees the Manila concessions, but overlaps of regulatory functions across authorities limit and fragment enforcement. There is also a regulatory agency for other water supply providers but no budget, manpower to enforce the law.
Singapore Regulatory framework but effectively self regulation by PUB
Thailand No
Regulation of Water services: Manila
• Achievements of Manila Water (East) from 1996 to 2009: availability (16h to 24h), coverage (58% to 99%), water losses (63% to 15%), staff/connection (9.8 to 1.4)
• 1997: MWSS enters in 2 concession agreements. A Regulatory Office is established to monitor implementation (MWSS-RO).
• Asian crisis put important pressure on the concessions.
It compromised the ability of Maynilad (West) to repay foreign debt. This ultimately led to contract cancellation in 2002.
Economic regulation by MWSS-RO
• Tariff adjustment mechanisms:
– rate rebasing every 5 years,
– annual inflation adjustment,
– quarterly adjustments to currency evolutions,
– extraordinary price adjustments as needed
• Performance indicators
– 14 Key Performance Indicators (water services, sewage and sanitation, customer service),
– 9 Business Efficiency Measures (income, operating expenses, capital expenditures, non-revenue water).
Improving governance of regulators
What does it mean competent, well resources regulatory authorities?
• Role clarity
• Independence
• Accountability & transparency
• Predictability
• Consultation
• Non discrimination
• Proportionality
=> How does it translate in terms of legislative framework, governing structure, funding, staff…
1 Infrastructure needs
4 OECD Policy Support
2 Private Investment in infrastructure in Vietnam
3 Making it work: lessons from international experience
OECD policy tools and processes
=> Development of tools & platforms for exchange on good practices in the area of institutional, policy & regulatory environment for PPPs
• A network on PPPs of Senior Budget Officials, a network of regulators under development
• Principles for PSP in Infrastructure and Guidelines for PPPs
• Support of reform implementation in countries through reviews (of general framework for PPPs or sector-specific).
• Capacity Building Programme for PPPs with the IMF, the African Development Bank…
