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

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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. 56
Making use of regional bodies can also help to overcome individual country capacity constraints for oversight functions. PASO is a good example of such an organization in the Pacific. This organization is similar to the Organization of Eastern Caribbean States (OECS) Civil Aviation Authority which helps member countries to maintain international standards of safety and security in the aviation and airports sector. ECTEL, the telecommunications regulatory agency for a number of Eastern Caribbean countries, is another good example of a regional body promoting coordination and increasing accountability through creating an oversight mechanism that overcomes human resource constraints (see Box 7.9). Public benchmarking information on how utilities and other infrastructure service providers compare against one another also encourages accountability. Communities can also help to provide oversight at the local level. If community leaders are included in the planning and prioritization process, they can be made responsible for overseeing contractor performance or supporting reforms. Finally, no sector reform option is going to result in an overnight transformation of infrastructure performance. These reforms will require donor support. In addition, in some Pacific countries, even if sector reforms are undertaken to the letter, and best practice is adopted, there may still be a need for continued subsidies and donor assistance. Although they may have contributed to weak accountability and poor coordination in the past, donor and multilateral lending agencies are in a position to encourage increased accountability within the Pacific region. These agencies form yet another possible oversight mechanism. 7.2.4 Strengthen the Public Sector None of these reforms will be achievable without a strong public sector, or without the political will to reform and possibly commit to higher prices if necessary. Private sector involvement is not a substitute for public sector reform, because this option requires a strong interface with the government. Lack of attention to the public-private interface is one of the reasons PSP initiatives often fail because the institutional boundaries become blurred. For example, under a management contract, the private sector management team typically reports to the public sector Board of a public utility. The interaction between the public and private sector takes place within the institutional setting of a utility, with the line between management and governance being inevitably less precise than what either the public or the private party would prefer. The interactions between management and governance levels within an organization are subtle, and can not easily be specified in a contract. Similar problems exist under lease contracts. Asset owners and operators can have genuine and legitimate disagreements about the optimal level of investment, as well as having disagreements prompted by their different interests. Sophisticated and skilled interaction is required to manage such disagreements on an ongoing basis. They way these disagreements are resolved cannot be specified in a contract, and the quality of the outcomes depends as much on the capability of the public sector as on the contract design. Under a full concession, the interface between public and private sectors can be reduced to the key service standards and tariff setting rules specified in the contract or enforced by the regulator. Even this is far from easy. It requires good quality regulation and oversight mechanisms to implement consistent and predictable policies. Strengthening the public sector will be a critical part of any infrastructure reforms in the Pacific. 57
Page 2 and 3:
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
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kWh MDG MIAA MIPA MNOC MOTCA MOU MP
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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 60 and 61: There are three classic types of pr
Page 62 and 63: While private sector involvement ma
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
Page 110 and 111: Regional Cooperation in Electricity
Page 112 and 113: 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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