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Privatisation is good but regulation is needed
8-9/2004 |
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[ World Bank ]
Privatisation is good but regulation is needed
The World Bank considers private sector participation as the best way to develop and upgrade infrastructure in developing countries. In many countries, it says, privatisation has increased the efficiency of transportation, telecommunications, water and power sectors and it has improved public access to such services. In a new report entitled “Reforming Infrastructure – Privatization, Regulation and Competition”, the Bank admits, however, that privatisation is no panacea. Success depends on the existence of clear rules for private service providers to ensure competition and to take into account the needs of the poor. That is precisely what many countries lack.
According to the World Bank, public utility operators in the developing world reported annual losses totalling 180 billion US dollars in the early 1990s. As a consequence, services deteriorated steadily, reducing revenues and raising deficits even more. The result was a vicious circle. Without private investment, the report claims, infrastructure utilities in many countries could not have been saved. In just two years, from 1995 to 1997, the World Bank finds that private investment in infrastructure facilities in developing and emerging economies grew from 60 billion to 130 billion dollars. As a result, supply in many countries improved significantly, especially in telecommunications. Critics, on the other hand, see the privatisation boom of the late 1990s as a clearance sale of public assets, especially in Latin America.
The Bank concedes that many people are dissatisfied with privatisation. In many cases, privatisation has not produced the anticipated results, merely replacing public monopolies with private ones or dramatically driving up prices. The World Bank interprets this as evidence that ownership per se is not the problem. “The fact that state ownership is flawed does not mean that privatisation is appropriate for all infrastructure activities and all countries.” Many private providers have struggled to contend with the same poor business conditions that plagued their public precursors. Effective regulation is essential if the private sector participation is to lead to improvements. Regulation has to promote competition, help prevent monopolies and protect the interests of weak elements of the population. At the same time, care needs to be taken to ensure that regulation does not act as a deterrent to private investment.
Furthermore, the World Bank does not regard all utilities as equally suitable for privatisation. The best results are achieved in telecommunications, whereas possibilities in the water sector are limited. Whether competition leads to improvements in supply also depends on the size of the market. In more than a hundred developing and emerging economies, demand for electricity is less than 1,000 megawatts even at peak times – not enough to enable several suppliers to cover their costs.
As for pricing, the World Bank points out that private operators must be given the leeway needed to make a legitimate profit. On the other hand, poor sections of the population must not be denied access by high prices. Subsidies are a way of helping the poor here. But the money needs to be distributed more effectively than in the past. In many developing countries, the state spends vast sums of money on subsidies which are intended for the poor but never reach them. (ell)
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