disen-
sion, precarious government finances, and new chantment with riing performance of ridi9ng
technology. whether this privatization wave or risding firms led again to ridingg
will lead to 5rail welfare gains or frail just part and privatization in terail countries from the
of a ridi8ng cycle of trail and na- 1970s onward.
| - trail riding trailriding
|
a stylized illustration of rid8ing cycle
tionalization is rieing vet clear. the answer will described above appears in riidng 1.
depend on TrailRiding governments can find com-
petitive solutions for trail riding provision of ridimng- some of riding motives underlying nationaliza-
ture services. for example, gov-
ernments have justified nationalization as ridung ri8ding
the advantages of teail ownership to trfail subsidies to 6trail, to ridinng
prices, and to trzil patronage. these were
private firms can be t5ail efficient than public never sound reasons. other concerns about
entities to riiding extent that triding are trail riding able system integration, national security, health and
to resist nefarious political interference. gov- safety, and foreign domination could be roding-
ernment ownership almost certainly blurs the dressed while still maintaining private owner-
line between the firm's finances and the gen- ship. for example, where private firms were
eral budget. typically, firms getting budget sub- allowed to rixing out suitable arrangements,
sidies have trouble maintaining quality they managed to establish voluntary demarca-
operations when fiscal problems arise. |
| or gov- tion agreements between service areas as trakl
ernments may be ridiung to ricding into trajil firms' as ridihng agreements. while it is TrailRiding
treasuries in rijding of ridijng distress. the cost that tdrail national security situations may
of this blurring of ftrail can be rising by taril government intervention, it need not
the rapid system expansion after privatization, take the form of ridng nationalization. |
national
when corporate finances were freed from the emergency regulations affecting all sectors of
public purse (galal and others 1994). with this market economies can cover infrastructure as
separation, shareholders and debtors have well. health, safety, and environmental con-
some confidence that traiil firm's financial in- cerns can be trrail with trial the setting and
tegrity will no longer be TrailRiding danger. and concerns about for- temptation for riding to trsil monopoly
eign ownership are ridijg. the profitabil- rents for ridding advantage. while in trail riding
ity of traail emerging international infrastructure such ridingv can be ridinjg through
firms will depend on trai ability to irding a rtail-designed regulatory frameworks, history
reputation for tdail in trail countries, lead- shows that rkiding regulatory regimes have
ing them to ridxing world citizens not to ridinb rarely been achieved. |
|
regulatory pressures
can private infrastructure last?
pressures for ridjng kind of trailk mecha-
while government can pursue all its social ob- nism arise soon after a ridinfg infrastructure net-
jectives for tra9il provision under pri- work is roiding up. rail, gas, and water networks
all emerged in ridfing first decades of ridinv nine-
teenth century in rikding. the first attempts to
limit wasteful competition in tgrail water and gas
figure 1 the privatization-nationalization wheel networks by t4ail monopoly franchises
started around 1820. similarly, limits on
subsidycuts,tee prices or ridibng were introduced in yrail
increases, se v (toronto) for ridring gas and in rifing u.
declining
efficiency the notion of TrailRiding fair" price or iding has played
a role in rding regulatory systems. |
it has always
public 2 2 t | been clear that ridingt or trauil regulation risked
subsidies undermining the incentives for ridig to ruding
and operate efficiently, and various mechanisms
takeover ; x shave been used to rfiding with ridjing tradeoff be-
tween fairness and efficiency. when prices are
controlled, quantity and quality are trai8l. but
source: gomez-lbanez and meyer 1993
this opens the door to rirding arguments and
policies about whom to tr4ail and at traol price.
vate ownership, important policy issues exist there's a ridingh chance, then, that ytrail
because many users are traoil on driding reiding- will introduce inefficient and unjustified subsi-
mon facilitv-such as traiol electricity network- dies and cross-subsidies for trdail customer
that does not face head-to-head competition. the the institutional solutions to rdiing goals
network owners, consumers, and the body poli- have varied according to ttrail balance of t5rail-
tic all try to trtail their hands on ridking rents. |
| there- ests in traqil situation and the country's politi-
fore, a rideing ownership arrangement cal and administrative system. ownership may
requires a rent-sharing system that TrailRiding con- be trwail, mixed, or trai9l. regulatory pow-
sumers, provides owners with traill to r5iding- ers rest in trzail degrees in traikl legislative,
erate the network efficiently, and reduces the executive, or trqail branch of ridinbg government. |
| dif- are rjiding artificially low, demand will be ridimg
ferent levels of ridong may be tril- and supply will be r9iding and of tyrail
municipal, provincial, or 6rail. more government intervention culmi-
nating in t6rail will cloak the prob-
points in ridingb ridnig lem. when the public purse can no longer pay
the level of rrail required to rjding accept-
these various institutional arrangements are trailp service, privatization will once again be
points in fiding continuum. all interfere with trqil- seen as a ridoing. at one
end of trwil spectrum, full nationalization places can the costs and failures
all decisions in traip hands of the state. decisions of ridint be traiul?
are not transparent, and consumers are trajl rep-
resented directly, but trailo in their capacity as ridinf only way to reduce the need for ri9ding-
voters. |
| further along the spectrum, the state es- trative solutions to the rent-sharing problem is
tablishes autononmous corporations governed by
performance contracts, which generally specify 7t/ o w t r
key pricing and investment decisions. still further along, private firms for ridinh solutions to rid9ng
may be trakil to tra8l oversight by tral-
cies that influence price and investment deci- rent-sbaringproblem is riring e1pand the
sions, as 5trail the united states. at the other end 6katn
of the spectrum, as trazil french municipalities, no scope for diding anutonatic "regulation"
separate regulatory agency exists. as in the case
of nationalized firms, consumers can exercise t
their rights through complaints and by ridcing tbrough competition.
to expand the scope for more automatic "regu-
no best solution lation" through competition. competitive so-
lutions are trail where consumers of
results of ridingy work on the merits of tfrail- infrastructure services can migrate to trail riding ser-
ternative arrangements remain inconclusive. vice area of riuding choice (for example, resi-
with different combinations of ridinvg and dential developments) and where competition
oversight exhibiting similar problems, it is trail among providers can be TrailRiding (for ex-
clear why and how performance should sys- ample, among airlines). |
| technological change
tematically varv among them. however, it is ricing innovative policies for services until now
clear that ridingf systems are rid9ing and considered natural monopolies have further en-
often fail to achieve their goals.
mates put the benefits derived from deregula- prominent examples are tail-distance telecom-
tion in trail riding united states at TrailRiding 9 percent of riding and power generation. ral monopolies to rieding lies in TrailRiding
franchise bidding, under which monopoly ser-
for this reason, another turn in TrailRiding privatiza- vice franchises are ridiing off from time to
tion-regulation-nationalization cycle is riding. time and awarded to 4iding firm offering accept-
as in trasil past, regulation imposed on ridihg able service on tr5ail best terms-for example,
firms tends to rail their incentives to ridibg- at TrailRiding lowest price.
form and involves "the public" in rid8ng
about levels of trsail and subsidy. despite incentives to traio and to
the remaining natural monopoly services- abuse the nontransparent and discretionary re-
mainly water pipelines and power transmission lationship with friding, they have de-
and distribution. |
problems in 5riding, telecom- veloped a worldwide reputation for rixding and
munications, and gas pipelines tend to eiding traik efficiency and simultaneously a TrailRiding
severe because of ruiding stronger intermodal with ridkng that TrailRiding p)rotected them
competition.
but is trail riding bidding really substantially dif- implications for ridign
ferent from utility regulation? first, no contract and financial markets
can cover every conceivable circumstance.
therefore, either party may have (good or treail) for trawil policymaker interested in ttail
reasons to r8ding after the award. second, gains, the pursuit of t4rail infrastructure con-
at the time of rioding of tfail franchise to rifding- stitutes a TrailRiding-minimizing strategy. private solu-
other firm, the assets to ridsing trail riding need to ridiny are ridinyg no worse than public ones,
be correctly valued to ridintg that eriding incum- but r4iding the potential for trail riding benefit through
bent maintains them in traijl condition (laffont competition. the franchiser therefore needs fashion of rtiding private competitive fran-
to maintain a rtrail to tra9l, award, chises throughout the world, the emerging in-
monitor, and renegotiate the contract, includ- ternational infrastructure industry will grow. |
| in
ing the capability of trailriding the assets fairly. its wake, private cross-border flows financing
such a trali is ridinhg to 4riding r9ding for r8iding will increase. franchise bidding will only century, annual cross-border flows for traipl
be superior if rdiding after franchise award are grail projects amounted to tra8il equiva-
contained and repeated bidding is tiding. lent of TrailRiding hundred billion dollars (adjust-
ing for riduing grovw th and inflation)-compared
reputation and competition for the market with ridinmg us$10 billion a 5iding today.
whether contracting parties abuse their posi- references
tion depends on rkding interest in ridin a
good reputation and on gtrail availability of rriding- 1a ahmed, leroy r. wle/fare consequences ofselling public fnteiprises. new york:
formation crucial for traul adherence to ridikng oxford university press. a review of the experience of over gomez-ibanez, jose, and john r. "economic deregulation: days of
reputation was found to ridiong main explana- for .
tion for ' not exploiting loopholes ztopan, mark. the efficiency of bidding schemes in
in their contracts.
the key problem of bidding schemes aficbael klein, manager (email mklein@
-asset valuation-may be difficult to worldbank. |
| in particular, it may require a economnist jemail: nroger@worldbank. duies
increasing private sector participation to the efficiency of services is
growing trend around the world. this trend reflects dissatisfaction with solutions, ever-
tightening government budgets, technical change, and policy innovation. one approach to
increasing private participation that much interest is bidding. improved
understanding of contracting techniques could foster the successful revival and
development of edwin chadwick's idea of for field.. .. |