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

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Pacific countries, management salaries in public corporations or corporatized entities are set at the same level as government department officials. To attract the right people, it may be necessary to set remuneration at a higher level. Governments may argue that this imposes an unnecessary additional financial burden on the service provider. However, if the appointed individual was able to turn the entity into an efficient unit which recovers its costs and provides good quality services, the benefits may far outweigh the costs. Another option is to employ managers on performance contracts, where extra pay is linked to actual performance to drive improvements. Another impediment to good public sector reform in many Pacific countries is government reluctance to support staff layoffs. Because job opportunities are limited in many Pacific countries, this is a particularly sensitive issue for many governments. However, keeping staff on who do not add any value, or forcing organizations to reappoint staff that have already been made redundant (such as was the case in the airports sector in Fiji), provides very poor incentives for efficiency and improved performance. Governments would do better to support leaner service providers, while providing support to ex-staff members and other individuals to develop small businesses that compete to provide important contract services. This initiative was employed successfully by Fiji’s electricity authority when trying to reduce staff numbers to an efficient level. A number of staff took voluntary redundancy packages, and now provide services to the utility on a contract basis. If staff layoffs are too disruptive and politically unacceptable and keeping staff on is a stated ‘social obligation cost’, then governments should support service providers keeping these staff on at a minimum wage and changing their roles to better suit their skills. This is the strategy employed at Nadi airport. Airport management were not allowed to make cleaning staff redundant, so they were redeployed to perform other ‘value-added’ activities, such as porter services or serenading services for arriving tourists. While this does not get rid of the financial burden imposed by employing more staff than is necessary for efficient operation, it does not continue to reward existing staff for work they are unsuited to and are not skilled at and offers some incentives for improved performance. Output Based Aid (OBA) programs can help to make Public Sector Reforms more successful. Output Based Aid is an innovative way of delivering targeted subsidies. It differs from conventional subsidy mechanisms in that the subsidy payment is tied to the delivery of a specific output, for example installing a water connection. OBA mechanisms are discussed in more detail in Box 7.6. 50
Box 7.6: Output Based Aid Mechanisms The figure below illustrates a contracting structure and the flow of funds in a typical OBA arrangement. To design a successful OBA scheme, it is necessary to design rules that answer the following questions: What is the trigger for the subsidy payment This answer to this question defines what the desired output is, and how to ensure that the output has been delivered Who is entitled to the subsidy This question aims to define consumers’ ability to pay, and therefore, whether they should receive the subsidy or not. This question can be answered through a survey of target groups within the population How much subsidy are they entitled to This question highlights the difference between the consumer’s ability to pay and the cost of providing the subsidized output. It is essential to determine that the proposed cost of providing the subsidized output is a true and fair cost. IFI Debt Service OBA Loan Agreement National Government Disbursement Request Government Contracting Entity OBA Loan Disbursements Subsidy Fund / Escrow Account Flow of Funds Contract / Agreement Invoice Escrow Agreement Invoice Output Payment OBA Provision Concession Contract Concessionaire Debt Service Loan Agreement Concessionaire’s Lender An institution, or multiple institutions need to manage the following aspects of the OBA scheme to ensure it functions effectively: The correct and fair application of the OBA rules The flow of monetary funds. There are a number of ways to structure the procedures and implementation of the OBA mechanism. Whichever option is selected, it should link subsidy payment to outputs, and should provide security to the operator or contractor that subsidies will be paid on time and in the pre-agreed amounts. Source: Castalia Private Sector Participation Involving the private sector is an alternative to public sector reform, although relatively few Pacific governments have chosen to exercise this option in infrastructure. As shown in Table 7.1, under a private sector participation (PSP) model, the government retains overall ownership (and therefore control) of the infrastructure assets, and contracts with a private firm to manage the systems and deliver the infrastructure services to customers. 51
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The Pacific Infrastructure Challeng
Page 4 and 5:
Table of Contents 1 Acronyms and Ab
Page 6 and 7:
Figure 8.4: Annual Per Capita Inves
Page 8 and 9: Box 7.9: ECTEL - Regulatory Coopera
Page 10 and 11: kWh MDG MIAA MIPA MNOC MOTCA MOU MP
Page 12 and 13: 2 Executive Summary This discussion
Page 14 and 15: Fiscal, regulatory and policy decis
Page 16 and 17: Figure 2.2: Estimated Annual Invest
Page 18 and 19: 3 What’s the Purpose of the Discu
Page 20 and 21: Box 4.2: Improving Infrastructure f
Page 22 and 23: 5 How well are Pacific Countries Pe
Page 24 and 25: Figure 5.1: Access to Electricity 1
Page 26 and 27: Water tariffs are often too low In
Page 28 and 29: Table 6.1 shows that in addition to
Page 30 and 31: These characteristics mean that Pac
Page 32 and 33: 6.2 Challenges to Institutions and
Page 34 and 35: 6.2.2 Demographic Issues in the Reg
Page 36 and 37: These high rural populations mean t
Page 38 and 39: Figure 6.3: Comparison of Defining
Page 40 and 41: Lack of legal and regulatory suppor
Page 42 and 43: 7 Challenge: How do we Lift Perform
Page 44 and 45: 7.1.2 Poor Policy Design and Coordi
Page 46 and 47: different, some efficiency may be g
Page 48 and 49: Figure 7.1: Accountability in Infra
Page 50 and 51: Box 7.3: Expert Panels can Improve
Page 52 and 53: Some of these reforms have already
Page 54 and 55: 7.2.2 Choose an Appropriate Reform
Page 56 and 57: Box 7.5: Public Sector Reforms in t
Page 60 and 61: There are three classic types of pr
Page 62 and 63: While private sector involvement ma
Page 64 and 65: Air services would also benefit fro
Page 66 and 67: 7.2.5 Regional Coordination One opt
Page 68 and 69: 8 What’s the Size of the Challeng
Page 70 and 71: Figure 8.3: Annual Per Capita Inves
Page 72 and 73: Figure 8.5: Mainlines Trend 0.600 N
Page 74 and 75: Figure 8.8: Annual Per Capita Inves
Page 76 and 77: Figure 8.11: Total Annual Per Capit
Page 78 and 79: 9 How do we meet the Challenge This
Page 80 and 81: Box 9.3: Can private sector involve
Page 82 and 83: Box 9.6: How can the public sector
Page 84 and 85: The proportion of mainline access a
Page 86 and 87: Box A.2: Introducing Telecommunicat
Page 88 and 89: Universal Access Universal access r
Page 90 and 91: good example of this. The Kiwi Shar
Page 92 and 93: Figure A.7: Reported Faults per 100
Page 94 and 95: Table A.1: Institutional Indicators
Page 96 and 97: and there have been calls to recons
Page 98 and 99: A.2 Electricity Sector Analysis A s
Page 100 and 101: Figure A.10: Average Electricity Ta
Page 102 and 103: Figure A.11: Economies of Scale in
Page 104 and 105: interest rate relief on a US$9m loa
Page 106 and 107: As Figure A.14 shows, Vanuatu perfo
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Table A.3: Industry Structure and G
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Regional Cooperation in Electricity
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A.3 Water and Sanitation Sector Ana
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Figure A.17: Availability of Water
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Figure A.20: Staff per 1000 Connect
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including full operating expenses a
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Corporatization is often employed t
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operating costs, collections levels
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Figure A.25: Road Network Density v
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Federated States of Micronesia at b
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In Samoa: Samoa’s Public Works De
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Many Pacific countries already outs
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4. Domestic and Pacific Island serv
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Figure A.31: TEU Throughput Levels
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system reduces cargo handling effic
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Economies of Scale Port operations
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The landlord model is the most comm
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Fiji 84 Ports The Maritime and Port
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Apia Port has become one of the bes
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Kiribati 90 Ports The Kiribati Port
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In Shipping: Services are considere
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Figure A.36: Total Passenger Throug
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Airline Services Figure A.38 illust
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establishment period. For the offic
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Vanuatu 101 Airports Vanuatu Limite
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Samoa 104 The Samoa Airport Authori
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Institutional Arrangements in Aviat
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Summary of Aviation Analysis The Pa
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Fiji Kiribati Marshall Islands Micr
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Barbados Dominica Grenada Jamaica M
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Samoa Solomon Islands Timor-Leste T
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Samoa Solomon Islands Timor-Leste T
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“A-Z World Airports Online” www
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