Political environment and civil engineering work A.pdf

8/17/2019 Political environment and civil engineering work A.pdf

1/22

POLITICAL ENVIRONMENT AND CIVIL

ENGINEERING WORK – PUBLIC – PRIVATE SECTOR INVOLVEMENT

CE 3231 – Project Formulation

Ganga Samarasekara

1


2/22

Course Description

1. Private and Public Sector Involvement in infrastructurefunding

a) Features of Public sector involvementb) Features of Private sector involvement

2. Institutional arrangements for infrastructure provisiona) Option A – Public Provision

b) Option B – Delegate to private sector

c) Option C – Private Provision

d) Option D - Communal (supportive) arrangement, self help

2


3/22

Learning Outcomes

Understand the capabilities & incapabilities of the

private and public sector in providing infrastructure

Be aware of the options available for public

private sector involvement

3


4/22

References

World Development Report 1994, Infrastructure for

Development , Oxford University Press.

http://go.worldbank.org/PIZVDKP300

Yuzo Akastuka, Tsunaki Yoshida. 1999. Systems for

Infrastructure Development, Japan’s Experience. Japan

International Cooperation Publishing Co., Ltd.

4

http://go.worldbank.org/PIZVDKP300http://go.worldbank.org/PIZVDKP300


5/22

1. Private and Public Sector

Involvement in Civil Engineering work

The mechanism of funding/ management may come

through

Public sector

Private sector

5


6/22

Features of public sector involvement

The developer of most infrastructure projects (Table1)

Autonomous (i.e. self-government or beingindependent or full control)

Capacity to handle different stages of the

development process (Box 1) Creditworthiness

Governments are entrusted with the Adjusting of thedistribution of resources & Distribution of income (tax

revenues) – infrastructure is one way of such distribution Prioritizes the equal distribution of resources over

and above profit motives

6


7/22

Features of public sector involvement

Specifically participate in the provision of

- Pure public goods ( where there is neither competitionnor exclusion of use)

- Projects to provide facilities or services public in nature

and which involves a considerable investment risk- Large projects for the provision of public goods for

which the initial capital cannot be supplied by theprivate sector

- Facilities which alleviate the negative consequencescertain other public goods - Ex. Environment pollutionby private industries

7


8/22

Features of private sector involvement

Plays a supportive role for most infrastructure projects

Managerial skills - rapid and flexible decision making due to aclear structure of incentives (individual rewards based onperformance)

Productive efficiency- private sectors are less constrained thanpublic sector by bureaucratic or political issues regardingprocurement (i.e. acquisition) and labor practices (resulting frommotivation to make profit)

Dynamic efficiency – motivation to invest in and maintain capitalneeded to expand and introduce technological improvements

Accountability to customers – motivation and flexibility to adaptproduction to changing markets and achieve better service qualityand customer satisfactions

8


9/22

Public sector Vs Private Sector

Public sector is expected to provide the services at anaffordable price to everyone.

Prioritizing such social objectives may lead to

losses. Further they may lack of innovation, suffer frombureaucracy and political intervention.

Private sector has capabilities to improve efficiency,innovative skills, is more flexible and accountable to

the customers.But they may not have the capacity (financial and

operational) and do not prioritize social objectives.

9


10/22

Table 3: Common management

Problems10


11/22

Box 2 - Botswana’s Water Utility

Corporation (BWUC) Case

Supply portable water to the country’s principle urban areas

while operating a self supporting service

Autonomy – Use expatriates(foreigners) as managers onshort term contract

Low levels of water losses (25%) – Accountability ofmanagers and can afford higher salaries

Tariff control

- higher rates – demand control & no need of subsidies

– Increasing block tariff – fairness & demand control

- Increase when necessary – drought, inflation

11


12/22

Box 2 - Botswana’s Water Utility

Corporation (BWUC) Case

Credit management

- Monthly billing

- Thirty day settling period

- Immediate service termination for defaulting customers

& reconnection charges

- Government customers billed through Ministry of Finance

& deducted from cash allocations Present situation – deterioration of control, risk of losses

and increasing demand in a water scarce country

12


13/22

Institutional arrangements for

infrastructure provision

a) Option A – Public Provision

b) Option B – Delegate to private sector

c) Option C – Private Provision

d) Option D - Communal (supportive) arrangement, self help

13


14/22

Option A: Public Provision

Ownership and operation by public entity, public

enterprise, public authority, or government

department-owned controlled by the central,

regional, or local government Running on commercial principles and

encouraging competition can improve performance

EX: Irrigation Department

14


15/22

Option B: Delegate to Private Sector

Delegate the operation of infrastructure facilitiesconcessions or leases to the private sector

Basic legal framework of contract law, includingbelievable enforcement mechanism in place

Contracts clearly specify monitorable performancetargets, responsibilities of owner and operator,processes for periodic review (Especially to account forunforeseen changes in input costs), mechanics to resolvedisputes and sanctions (approval/penalty) for nonperformance

Contracts awarded by transparent selection process,preferably competitive bidding

15


16/22

Option B: Lease Contracts

Exclusive rights to operate facilities of the public sector

No responsibility for major investments

Contractor will retain all or part of the revenue

Level of risk to the private operator will be higher as heinvests the working capital and depends basically its return

from its operating performance

The public sector responsible for fixed investment and debt

servicing while the contractor normally must finance workingcapital and replacement of short-lived assets

Government reduces political risk of tariff setting

6-12 years contract

16


17/22

Option B: Lease Contracts

Franchise (rights given) or license

In ‘transportation’ area it is called ‘competitive

tendering’ for the rights to operate a particular route

Ex: Thailand introduced ‘competitive tendering’ for

the operation of certain passenger lines in 1985 and

as of 1990; it was found to have succeeded in

attracting the road users to the railway while

generating profit

Used for decades in urban water supply and

sewerage in France and Spain

17


18/22

Option B: Concession contracts

Incorporate all features of lease, but the contractorshave the additional responsibility for financingcertain specified replacements to fixed assets

Investment plans and implementation are subject toreview by the authority issuing the contract

The assets go back to the public owner uponcompletion of the concession

The contractor’s compensation is based on ‘tariffs’which are also determined according to agreement setout in the concession contract

Normally at least 15 years

18


19/22

Option B: Concession contracts - BOT

Built Operate and Transfer Private sector designs, builds and operates the

projects for and agreed period and then transfers

ownership of the facility to the government

Private sector gets the income from revenue Public sector develops the detail specifications of the

tender documents in order to ensure that (strongregulatory framework)

- Bids are comparable and fulfill the public interests

- A proposed BOT scheme is financially viable (i.e.traffic volume forecasts, possible governmentguarantees)

19


20/22

Option B: Concession contracts - BOT

Operational in Asian developing countries mainly in

‘power sector’ and ‘transportation sector’

Popularly used in ‘toll roads’ in many countries

(France 5500 km motorway as of 1990) Usually 15 – 30 years, ‘operate before transfer’

BOO (Build-Own-Operate) – facility is not

transferred but remains in private hands BTO (Build-Transfer-Operate) – Mainly grant basis

DBT (Design-Build-Transfer) – Where inability to

design and build

20


21/22

Option C : Private Provision

Used when there is a high potential for revenues

and when commercial risk and political risk are

low

Where there is no competition, regulations may benecessary

Better for activities with competition, such as

telecommunications, power, gas, railways, and ports(with appropriate tariff policies)

Less likely for waste disposal or rural roads

21


22/22

Option D: Communal arrangement, self help

Mobilizing labor and capital to construct small-

scale, local infrastructure – locals act as the full or

partial owners, financiers and suppliers

Selected, designed, and implemented locally-notimposed from outside

Independent from government oversight (omission)

Village feeder roads, water supply and sanitation,and canals, or small scale power generation off the

national grid

22

Date post:	06-Jul-2018
Category:	Documents
Upload:	mohamedraahim
View:	216 times
Download:	0 times

Political environment and civil engineering work A.pdf

Documents