Privatization and Regulation of Transport Infrastructure in the 1990s: Successes...and Bugs to Fix for the Next Millennium

1999mmpPDFResearch PaperPublic private partnershipsPrivatizationInfrastructureRegulationTransportation infrastructureWorld BankEstache, AntonioWorld BankNTL-PLANNING AND POLICY-PLANNING AND POLICYNTL-ECONOMICS AND FINANCE-Alternative FinanceUS Transportation CollectionThe 1990s have seen a dramatic increase in the liberalization of transport policies, thus strengthening the return of private operators and investors in transport infrastructure in the world. The need to cut public expenditures forced pragmatic governments to turn to the private sector for assistance in financing the tremendous investment requirements in infrastructure, freeing up shrinking public resources to finance deficits and service debts. The necessity of increased private sector involvement in transport infrastructure does not mean that the role of the public sector is over. It will continue to have to finance many projects too risky to attract private investment at viable rates of return. It will also continue to have to define policies and strategies for the sector. The main change is that it must replace its previous role as a self-regulated provider of services with that of a new role as an independent regulator of the significant number of activities delivered by private operators. This new role is important because not every transport activity is competitive. Moreover, even when competition can work because entry is feasible and desirable, public regulation of safety or service quality is often needed to ensure that operators do not cut costs through these quality variables. The international experience of the 1990s suggests that while the transfer of operations from public to private hands is reasonably smooth on average, the transition of the public sector from self regulated operator to independent regulator of private monopolies and other market failures is proving to be much more challenging than anticipated. This changed governmental role still requires significant adjustments in many countries ensure that the expected efficiency and financing payoffs of private sector participation can be sustained. This paper takes stock of the main achievements and highlights the major challenges that governments are likely to face in taking on their new role in this sector. It is organized as follows: Section 2 gives a snapshot of the main transactions resulting in increased private participation in transport during the 1990s;. Section 3 advances impressions about the impact of the 1998-1999 financial crisis in emerging economies on the prospects for future private participation in transport; Section 4 provides some evidence on the forms of private sector participation that results from restructuring across regions; Section 5 presents the ways in which competition has been introduced in transport; Section 6 discusses the new role for government and identifies the main challenges that will have to be addressed soon to ensure that the gains achieved through additional private involvement are more than just additional investments and that all users share in the long-run benefits; Section 7 provides some concluding thoughts. Bibliography, tables, 35 p