EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf
EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf
EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf
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Box 7.6: Output Based Aid Mechanisms<br />
<strong>The</strong> figure below illustrates a contracting structure and the flow of funds in a<br />
typical OBA arrangement.<br />
To design a successful OBA scheme, it is necessary to design rules that answer the<br />
following questions:<br />
What is the trigger for the subsidy payment This answer to this question<br />
defines what the desired output is, and how to ensure that the output has been<br />
delivered<br />
Who is entitled to the subsidy This question aims to define consumers’ ability<br />
to pay, and therefore, whether they should receive the subsidy or not. This<br />
question can be answered through a survey of target groups within the<br />
population<br />
How much subsidy are they entitled to This question highlights the difference<br />
between the consumer’s ability to pay and the cost of providing the subsidized<br />
output. It is essential to determine that the proposed cost of providing the<br />
subsidized output is a true and fair cost.<br />
IFI<br />
Debt Service<br />
OBA Loan<br />
Agreement<br />
National<br />
Government<br />
Disbursement<br />
Request<br />
Government<br />
Contracting Entity<br />
OBA Loan<br />
Disbursements<br />
Subsidy Fund /<br />
Escrow Account<br />
Flow of Funds<br />
Contract /<br />
Agreement<br />
Invoice<br />
Escrow<br />
Agreement<br />
Invoice<br />
Output<br />
Payment<br />
OBA Provision<br />
Concession Contract<br />
Concessionaire<br />
Debt<br />
Service<br />
Loan<br />
Agreement<br />
Concessionaire’s<br />
Lender<br />
An institution, or multiple institutions need to manage the following aspects of the<br />
OBA scheme to ensure it functions effectively:<br />
<strong>The</strong> correct and fair application of the OBA rules<br />
<strong>The</strong> flow of monetary funds.<br />
<strong>The</strong>re are a number of ways to structure the procedures and implementation of the<br />
OBA mechanism. Whichever option is selected, it should link subsidy payment to<br />
outputs, and should provide security to the operator or contractor that subsidies<br />
will be paid on time and in the pre-agreed amounts.<br />
Source: Castalia<br />
Private Sector Participation<br />
Involving the private sector is an alternative to public sector reform, although<br />
relatively few <strong>Pacific</strong> governments have chosen to exercise this option in<br />
infrastructure.<br />
As shown in Table 7.1, under a private sector participation (PSP) model, the<br />
government retains overall ownership (and therefore control) of the infrastructure<br />
assets, and contracts with a private firm to manage the systems and deliver the<br />
infrastructure services to customers.<br />
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