EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf

7.1.2 Poor Policy Design and Coordination
Infrastructure service provision is complex. Many organizations with conflicting
objectives must be brought together to pull in the same direction. This is particularly
true of government agencies and elected Cabinets which often operate as decision
making “silos”, rather than as policy “integrators”. Difficult decisions have to be
made and implemented across many institutions, but they often suffer from
fractionation and inconsistency of policy decision making at the political or senior
official level.
It is also important to have consistent and predictable government policies for
infrastructure providers and operators. Creating a predictable policy environment for
the private sector, or for state owned enterprises operating in a commercial manner
where they face competition and/or statutory or regulatory requirements, is a key
prerequisite of obtaining sustainable investment in infrastructure.
In this section, we discuss several common coordination problems in infrastructure
in the Pacific.
1) Lack of focus on creating sustainable investment in infrastructure: In the Pacific,
governments have often focused on building new infrastructure, rather than
investing in sustainable infrastructure operations and maintenance. For example,
Pacific governments have emphasized construction and extension of road networks
to the detriment of operations and maintenance. This has contributed towards higher
overall costs. The same is true of ports and airports.
2) Lack of alignment of policy objectives and coordination: Fiscal, regulatory and policy
decisions are often not aligned and are sometimes contradictory. This can create
problems. For example, a number of Pacific countries have embarked on a policy of
corporatization, under which utilities should be paying a dividend to the government
to reflect a reasonable return on the capital invested. Nevertheless, in some countries,
tariffs are held below true long term operating cost and the dividend payment is
waived as a way of meeting the revenue shortfall from consumers. This amounts to
an indirect, non-explicit subsidy on services, often without a full understanding of
the sustainability ramifications on the underlying infrastructural asset.
Instead of being clear about whether to provide a subsidy which is balanced against
competing fiscal priorities and then appropriating it in the budget, there is often
fudging of the long term sustainability of infrastructure provision. Often institutional
structures are put in place to try and deal with the effects of the lack of clear policy
objectives. This can result in the true costs of providing infrastructure being hidden,
and with this, the true subsidies payable by taxpayers or classes of user are hidden
from policy makers and consumers. They are often very large.
The Samoa Electric Power Corporation (EPC) provides an example 14 . The EPC has
been corporatized for some time. As such, it is required by law to identify any
community service obligations transparently. The company is also required by law to
file Value Added Tax (VAGST) returns. There are no exceptions for large companies
or government corporations. The EPC has paid around 5 – 6 million Tala in GST
over the past 4 years, but has not passed this on to the consumer. There has been no
tariff increase subsequent to the introduction of VAGST. Although the law states
EPC can claim the VAGST it pays back, it has not yet done so and neither has it
filed the required tax returns. It is implied that these claims are partly offset by the
fact that EPC does not pay Government any dividend. Lack of transparent tax
treatment makes it very difficult to establish whether EPC is receiving a subsidy, or is
being stripped by the Government. As a commercial entity, EPC should have
charged GST on electricity outputs (which would result in higher electricity tariffs),
and claimed back GST on inputs. It should also have been held liable for failing to
14 Castalia Interview with EPC
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