THE FUTURE OF PRIVATE INFRASTRUCTURE: LESSONS FROM THE PAST DECADE

1. THE FUTURE OF PRIVATE INFRASTRUCTURE: LESSONS FROM THE PAST DECADE José A. Gómez-Ibáñez Presentation to the Transportation Colloquium 2005 Australia Department of Transport and Regional Services Canberra, May 18-19, 2005

2. OUTLINE • THE SUCCESS IN SERVICES • WHY WE TRIED INFRASTRUCTURE • LESSONS LEARNED • FAVORABLE CONDITIONS

3. SERVICES vs. INFRASTRUCTURE

4. SERVICE PIONEERS(PRIVATIZATION OR DEREGULATION) • 1960s: DEVELOPING COUNTRIES BUSSES • 1970s: CHILE: TRUCKING, OCEAN AND COASTAL SHIPPING • 1978: US AIRLINE DERGULATION • 1980: US RAILROAD AND TRUCKING DEREGULATION • 1980: UK INTERCITY BUS DEREGULATION • 1986: UK URBAN BUS DEREGULATION

5. PRESENT SCOPE OFPRIVATE SERVICES

6. INFRASTRUCTURE PRIVATIZATION TYPES AND MOTIVES

7. WHY WE PRIVATIZED INFRASTRUCTURE • THE FAILURE OF SOE REFORM • THE EVOLUTION OF REFORM • MEMORANDA OF UNDERSTANDING LEFT UNDERLYING SOE POLITICS UNALTERED (LABOR, MANAGEMENT, FAVOURED CUSTOMERS) • CRISES • MACRO ECONOMIC • SECTORAL (E.G., BLACKOUTS) REVEALED HIDDEN COSTS OF THE STATUS QUO

8. THE EXPERIENCE: HIGH PROFILE CONTROVERSIES ELECTRICITY • DABHOL POWER PLANT (1994) • IPPs IN PAKISTAN, INDONESIA, PHILIPPINES (1998) • CALIFORNIA CRISIS (2000) • AREQUIPE CONCESSION (2001) • DOMINICAN REPUBLIC CONCESSIONS (2004) WATER • TUCUMAN CONCESSION (1996) • COCHABAMBA CONCESSION (2000) • MANILA CONCESSION (2001) • EL ALTO CONCESSION (2005) CROSS SECTOR • ARGENTINE DEFAULT AND DEVALUATION (2002) TRANSPORT • BANGKOK SECOND EXPRESSWAY (1993) • MEXICAN TOLL ROADS (1995) • RAILTRACK BANKRUPTCY IN UK (2001) • MANILA AIRPORT (2004)

9. NEW INVESTMENT BY REGION 1990-2001 Latin America Fastest Rise and Fall

10. NEW INVESTMENT BY SECTOR 1990-2001 Tel & Electricity Fastest Rise and Fall

11. NEW INVESTMENT BY TYPE1990-2001 Divestitures Fastest Rise and Fall

12. DISPUTES VS. CANCELLATIONS RENEGOTIATEDCANCELLED (% OF CONTRACTS) (% OF VALUE) TELECOMS 1% 0.4% ENERGY 5% 2.4% TRANSPORT 74% 9.3% WATER 55% 11.3% (Sources: Jose Luis Guasch on renegotiations, Clive Harris and John Hodge on cancellations)

13. LESSONS LEARNED • DON’T UNDERESTIMATE POLITICS • IN THE INITIAL PRIVATIZATION: • SOE SALE OR LEASE: WORKERS AND CUSTOMERS • CONCESSION FOR NEW INFRASTRUCTURE: EASIER • AFTER PRIVATIZATION: • DRAWN OUT REFORM (E.G., ELECTRICITY) • REGULATORY DISPUTES

14. LESSONS LEARNED • CONSTRAINTS OF PRIVATE CAPITAL • PUBLIC vs. PRIVATE CAPITAL • FOREIGN CAPITAL • POLITICAL RISK • SYSTEMS OF REGULATION • CONCESSION REGULATION: THE INCOMPLETE CONTRACT • DISCRETIONARY REGULATION: POLITICAL INDEPENDENCE vs INSENSITIVITY • SUB-SOVERIGN GOVERNMENTS

15. FAVORABLE CONDITIONS • REAL EFFICIENCY GAINS, NOT TRANSFERS • EFFICIENCY GAINS: • MORE OUTPUT FOR SAME INPUT • TRANSFERS: • HIGHER PRICES FOR SAME SERVICE • LAYOFF WORKERS IN WEAK ECONOMY • COMPETITION OR LIMITED REGULATION

16. FAVORABLE CONDITIONS • FINANCIALLY SELF SUPPORTING FROM USER CHARGES • SUBSIDIES TO PRIVATE FIRM MORE CONTROVERSIAL • GOVERNMENT MAY NOT MEET ITS COMMITMENT • NOT DEPENDENT ON THIRD PARTIES FOR SUCCESS

17. IMPRESSIONISTIC PRESCRIPTION

18. CHANGING POLICY CONVENTIONAL WISDOM (IN CARICATURE): • 1960s-1970s: AGNOSTIC • 1980s: PRIVATIZE SERVICES • 1990s: PRIVATIZE EVERYTHING • 2000s: PRIVATIZE SERVICES 2005 VIEW: • SERVICES ALMOST CERTAINLY • INFRASTRUCTURE SELECTIVELY • REMEMBER THE COUNTERFACTUAL (SOE) • REMEMBER THE POLITICS

19. FURTHER READING SUMMARY OF EXPERIENCE WITH PRIVATE PARTICIPATION BY MODE: • Estache and de Rus, Privatization and Regulation of Transport Infrastructure (World Bank Development Studies, 2000) SUMMARY OF EXPERIENCE WITH SOE REFORM: • Galal and Shirley, Bureaucrats in Business: The Economics and Politics of Government Ownership (World Bank and Oxford University Press, 1995) REGULATION OPTIONS AND EXPERIENCES: • Gomez-Ibanez, Regulating Infrastructure: Monopoly, Contracts and Discretion (Harvard University Press, 2003)