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

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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). 52
Box 7.7: Private Sector Involvement in Telecommunications A number of Pacific countries have involved the private sector in providing telecommunications services. In most cases, a private sector company has partnered with the government (e.g. Fiji’s FINTEL or Telecom Vanuatu Limited), or with other private investors (e.g. Solomon Telekom Company (ST)) to provide telecommunications services. These companies have traditionally been granted an exclusive, long term operating license, which can be reviewed at certain intervals. These monopoly arrangements have inhibited growth in the telecommunications sector. The Solomon Islands experience provides an example of how this occurs. The Government of Solomon Islands (GoSI) entered into a telecommunications license with Solomon Telekom Company (ST). ST is a joint venture of the Solomon Islands National Provident Fund (51%), Cable & Wireless (41.9%) and the Investment Corporation of the Solomon Islands (7.1%). The License grants ST exclusive operating rights for all telecommunications services. The License provides for a review of the terms on a five yearly basis. This arrangement has failed to produce good performance: Total teledensity levels are among the lowest in the region Services are limited to the main city - approximately 90% of the market is in Honiara International and mobile calling costs, and internet access prices are among the highest in the region. One of the principle reasons for this poor performance is a lack of accountability. Some of the key issues are: The exclusive long term License does not allow for competition or interconnection The License does not stipulate any investment obligation for the operator. It mentions a community service obligation, but does not set specific coverage targets. There is therefore little incentive to extend service The government lacks detailed technical knowledge and understanding of the sector and is therefore unable to regulate the operator effectively. GoSI has initiated a telecommunications sector reforms as part of a comprehensive economic reform program, in which it aims to address these issues. Renegotiating the License when it comes up for review in 2008 is a priority, and will include and evaluating options for revising the exclusive nature of this agreement. Source: World Bank, Castalia research and interviews Key features of successful public sector involvement include: Selecting a PSP contract that matches the sector specific problems. For example, if a key issue is management skills and capability, then a management contract may be a good solution. If a utility lacks both adequate management skills and requires significant investment to turn performance around, then a concession contract may be a better option Careful contract design to ensure that: – Responsibilities are clearly allocated – Operator incentives will drive expected performance – The contract takes account of the specific social and political context in the country – There are clear provisions for dispute resolution Ensuring there are appropriate oversight mechanisms in place. 53
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The Pacific Infrastructure Challeng
Page 4 and 5:
Table of Contents 1 Acronyms and Ab
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Figure 8.4: Annual Per Capita Inves
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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 58 and 59: Pacific countries, management salar
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
Page 108 and 109: 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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