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

There are three classic types of private participation contract:
Concession Contract: This contract is most closely related to
privatization. Under this contract, the concessionaire is responsible for all
aspects of service provision and its shareholder(s) or parent company is
rewarded with profit from the utility, after all operating and debt service
costs are paid. Vanuatu has a concession in place for water and electricity
services, and Papua New Guinea has a concession in place for water
services
Lease Contract: In a lease contract, the government retains responsibility
for planning and financing capital expenditure. The private operator is
responsible for meeting agreed service standards that are achievable with
the available assets. Tariff revenues are split in two: The first part covers
operating and maintenance costs. This goes to the private operator. The
second part goes to the public sector to help finance additional investment
Management Contract: Under a management contract, the private
operator is typically paid a fixed fee for managing the utility, plus a
performance fee for meeting financial and service improvement targets. It
is the targets and payments in the management contract that determine
how the operator directs the utility’s performance.
While there are relatively few examples of private sector involvement in the Pacific,
experience in some comparator countries has shown that this can help to improve
infrastructure performance. Caribbean countries have significant private ownership
or operation of electricity utilities or telecommunications companies, as well as
private investment in roads, airports, ports and airlines. Private involvement has
helped these countries to expand access, finance investment, boost efficiency, and
limit government risk. However, poorly planned public-private partnerships have
resulted in governments having to take back risks and costs they believed they had
transferred.
In the Pacific, Fiji has had success in outsourcing electricity generation, Vanuatu’s
decision to engage a private operator to deliver water and electricity services under a
concession contract has resulted in some of the most efficient services in the region.
Ports in Samoa have benefited from adopting a ‘landlord’ model, in which port
services are provided by private companies.
There are also examples where private sector involvement has been less successful.
Some reports suggest that the concession arrangement for Papua New Guinea’s
water utility in Port Moresby, ‘Eda Ranu’, has failed to deliver to expectations.
Problems in the tender process, and a flawed contract which gave the operator
responsibility for the supply, but not the distribution side of the water system, have
been noted as some of the reasons for poor performance. Private sector involvement
in the telecommunications sector has also failed to produce good performance,
where long term exclusive licenses are awarded (see Box 7.7).
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