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

Air services would also benefit from more competition. The international experience
is that liberalization can reduce fares and increase volumes, providing a boost to
business and tourism. Many of the Pacific carriers either operate at a loss or are only
marginally economic. Most countries retain their flag carriers as a means to ensure
continuity of air service, but this is not always financially sustainable. Open skies, or
multilateral air services agreements will encourage competition, providing greater
choice and lower fares for passengers. State-owned flag-carriers could then be
privatized (or shut down if they are unable to compete with other carriers). If
governments feared that a liberalized aviation policy might results in key routes being
unserved, they could competitively award contracts to serve those routes in exchange
for a subsidy payment.
Full competition may not be achievable in natural monopoly sectors such piped
water and sanitation and electricity distribution. Here, a competitive environment
can be simulated by inviting private operators to bid for contracts to provide the
service for a fixed term. This has worked in the roads sector in Fiji and Samoa, where
maintenance has been contracted to the private sector. It has also been employed in
the ports and airports sectors. Ports in Samoa and Papua New Guinea both contract
out stevedoring services to competing private operators. A number of airports in the
Pacific put various terminal services out to competitive tender.
7.2.3 Put in Place Oversight Mechanisms to Support Reform
Accountability is vital to improved sector performance. When government
departments provide infrastructure services, accountability is weak, because the same
body is generally responsible for providing and sanctioning service.
All the sector reform options discussed here aim to resolve this problem by
introducing an ‘arms length’ relationship between the service provider and the
governing authority. Regardless of which option is selected, it is imperative to
support the reform by putting in place oversight mechanisms to monitor
performance, to encourage good performance and to punish poor performance.
In a public corporation or a corporatized institution a strong, well functioning Board
traditionally has oversight for ensuring the company performs to expected objectives
and can call upon management to account for instances where this does not happen.
The Board is in turn accountable to Government.
Under the private sector participation reform model, accountability may be
encouraged through establishing a contract monitoring unit. This unit would be
responsible for overseeing operator performance and ensuring that it meets agreed
objectives. Changes to the contract would have to be re-negotiated between the
government and the operator. For example, the Government of Vanuatu’s Energy
Unit performs this function by overseeing the concession contracts with UNELCO.
Competition in infrastructure service provision also requires oversight to ensure that
providers don’t collude, prices remain fair and reasonable, and customers received
the type and quality of service they need. This may be carried out by a competition
authority, a consumer protection authority and/or a regulatory authority.
It is often thought that both competition and private sector involvement require an
independent regulator. This is a challenge for Pacific countries. Small size, and
limited financial and human resources constrain their ability to create separate
independent regulators. However, regulation does not necessarily imply a regulator.
In the case of private sector involvement, a contract monitoring unit may perform
core regulatory functions and monitor performance against other contract-specific
clauses very adequately. In other cases, building capacity within the Ministry to
enable it to oversee the operator’s performance may be sufficient to improve
performance.
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