267 privatesector P U B L I C P O L I C Y F O R T H E NUMBER NOTE 2004 Private Infrastructure Ada Karina Izaguirre FEBRUARY The Private Participation Activity Down by 30 Percent in 2002 in Infrastructure (PPI) Project Database tracks Drawing on the World Bank's Private Participation in Infrastructure infrastructure projects Project Database, this Note reviews developments in 2002. Investment owned or managed by private companies in in projects with private participation totaled US$47.5 billion--falling energy (electricity and back to 1994 levels--and 128 projects reached financial closure. natural gas transmission and distribution), Energy was the only sector in which private activity grew in 2002, PRESIDENCY telecommunications, driven by natural gas transport projects. Europe and Central Asia and transport, and water South Asia saw private activity grow in 2002. And in low-income VICE and sewerage. For more information on the database countries private activity rose to among the group's highest see the Web site at investment levels in 1990­2002. http://rru.worldbank.org/PPI. Over the past decade most developing economies between 1990 and 1997, from US$18 billion to DEVELOPMENT Ada Karina Izaguirre haveinvolvedtheprivatesectorinprovidinginfra- more than US$127 billion (figure 1). Since then (aizaguirre@worldbank.org), structure services. Indeed, between 1990 and investment flows have gradually declined, ex- World Bank, Infrastructure, SECTOR 2002, 136 low- and middle-income countries cept for a temporary recovery in 2000. In 2002 Economics and Finance introduced private participation in infrastructure sectors--65 of them in at least three sectors.1 Investment in infrastructure projects with private participation in PRIVATE During that period the private sector took over Figure developing countries, 1990­2002 the operating or construction risk, or both, for 1 more than 2,600 infrastructure projects in devel- oping countries, attracting investment commit- GROUP ments of more than US$800 billion.2 These projects have been implemented under schemes BANK ranging from management contracts to conces- sions to divestitures to greenfield build-operate- transfer or build-operate-own projects. WORLD The year in aggregate Annual investment flows to infrastructure proj- THE ects with private participation grew strongly Source: World Bank, PPI Project Database. P R I V A T E I N F R A S T R U C T U R E A C T I V I T Y D O W N B Y 3 0 P E R C E N T I N 2 0 0 2 they amounted to US$47.3 billion, 30 percent telecommunications companies, investments to less than in 2001. acquire government assets fell sharply. In 2002 Despite the big decline in recent years, pri- they amounted to only 25 percent of the level in vate activity remains significant. In 2002 more 1998. Investments in facility expansion also fell in than 125 new infrastructure projects with pri- 1998­2002, but less sharply. In 2002 they were at vate participation reached financial closure, 40 percent of their peak in 1997 (figure 2). and the US$47.3 billion committed to these projects and those reaching closure in previous Sector trends years was only 24 percent less than the average Telecommunications and transport saw the 2 for 1990­2002 and much more than commit- biggest declines in investment flows in 2002 (table ments at the beginning of the decade. 1).Investmentflowstotelecommunicationsfellto The decline in private activity in 1998­2002 US$24 billion, the lowest since 1995, declining in was driven mainly by a slowdown in the acquisi- all regions except East and South Asia. Only 11 tion of government assets (state-owned enter- telecommunications projects reached closure in prises, bands of radio spectrum, or rights to 2002, most of them small mobile operators. The operate monopoly services such as airport facili- decline was driven in part by a slowdown in invest- ties). In 2002 major transactions involving such ments by mobile operators after years of heavy assets were limited to the initial public offerings investment in rolling out their networks. In trans- of a mobile operator in China and two natural gas port investment flows dropped to US$5 billion, transport companies in the Czech and Slovak the third lowest in 1990­2002. Most of this went Republics. After peaking in 1997­98, when Brazil to toll roads in Chile, Uruguay, and Jamaica and privatized most of its electricity distribution and port terminals in China, Indonesia, and Oman. TollroadsaccountedforUS$2.6billion,andports Investment in infrastructure projects for US$2.2 billion. with private participation in developing countries, by destination, Investment commitments also fell in water Figure 1990­2002 and sewerage. China accounted for most of the 2 activity in this sector in 2002, with 12 of the 21 projects and US$1.2 billion of the US$1.9 billion in investment commitments. The private activity in China was driven by the need to improve urban water supply. Energy was the only sector in which private activity grew in 2002, driven by natural gas trans- port projects. Investment commitments for natu- ral gas transport amounted to US$9.7 billion, the peak for 1990­2002. Divestitures of large incum- bent natural gas operators in the Czech and Slovak Republics, an export-oriented pipeline in Sub-Saharan Africa, and another pipeline in Viet- nam accounted for most of that investment. The number of projects with private activity also rose, with 35 natural gas transport projects reaching financial closure in 2002. Distribution pipelines for China's state-owned West-East transmission pipeline accounted for 29 of these projects. In electricity investment commitments dropped to US$7 billion, the lowest since the early 1990s. Most of this was directed to the 22 a. Divestiture revenues, license fees, and canon payments. power plants reaching financial closure in 2002 Source: World Bank, PPI Project Database. and to Latin America and Eastern Europe. Investment in infrastructure projects with private participation in developing Table countries, by region or sector, 1990­2002 (2002 US$ billions) 1 Region or sector 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total East Asia and Pacific 2.7 4.3 9.7 13.7 17.1 22.2 32.1 39.0 10.6 9.8 15.0 12.4 9.7 198.4 Europe and Central Asia 0.1 0.4 1.4 1.5 4.4 9.5 12.4 16.0 13.1 10.0 23.2 7.3 9.7 109.0 Latin America and the Caribbean 14.9 12.9 16.5 19.3 19.5 20.2 29.6 55.3 77.0 39.9 40.5 34.3 17.3 397.2 Middle East and North Africa 0.0 --a 0.0 3.6 0.4 0.1 0.4 5.7 3.4 3.2 4.1 3.9 1.6 26.4 3 South Asia 0.4 0.8 0.1 1.4 3.4 4.2 6.6 6.8 2.8 5.0 4.2 4.6 5.5 45.8 Sub-Saharan Africa 0.1 0.0 0.1 0.0 0.8 0.9 1.6 4.8 2.7 4.8 3.4 5.0 3.5 27.8 Energy 1.3 1.3 13.1 15.9 17.2 25.4 34.2 51.6 30.5 18.0 28.4 14.9 16.5 268.3 Telecommunications 6.3 13.7 8.0 9.9 18.8 20.2 28.5 44.3 56.3 38.7 47.3 40.2 23.7 355.8 Transport 10.5 3.4 4.7 5.8 9.0 9.7 18.1 22.1 19.3 9.0 9.9 10.0 5.2 136.6 Water and sewerage --a 0.1 2.0 8.0 0.5 1.8 2.0 9.4 3.5 7.0 4.9 2.5 1.9 43.6 Total 18.1 18.5 27.7 39.6 45.6 57.1 82.8 127.5 109.6 72.7 90.5 67.6 47.3 804.5 a. No private participation in infrastructure occurred. Source: World Bank, PPI Project Database. Regional trends East and North Africa private activity also Among regions, Latin America and East Asia declined in 2002. Investment was directed to two experienced the biggest declines in investment water and sewerage projects, one mobile opera- flows, with both seeing the lowest levels since tor, and one port terminal. 1992. Investment flows to Latin America fell By contrast, Europe and Central Asia and in all infrastructure sectors, though telecom- South Asia saw private activity grow in 2002. In munications accounted for most of the de- Europe and Central Asia the privatization of two cline, dropping from US$22 billion in 2001 to natural gas transport companies and electricity US$10 billion in 2002. After years of in- generation and distribution companies account- vesting massively in fixed and mobile networks, ed for most of the investment flows. In South telecommunications companies slowed down, Asia investment flows went mainly to network having already met most of the demand for expansion by mobile operators in India. phone lines under current market conditions. Even so, much of the investment in Latin America went to network expansion by existing Investment in infrastructure projects operators. with private participation in In East Asia investment flows declined in all developing countries, by income Figure group, 1990­2002 sectors except telecommunications. The few 3 large projects attracting investment included an initial public offering of China Telecom, a nat- ural gas pipeline and a power plant in Vietnam, two port terminals in China and Indonesia, and water treatment plants in China. In Sub-Saharan Africa, too, investment flows fell, but only to US$3.5 billion, the third highest level for the region in 1990­2002. Most went to an export-oriented gas pipeline between Moz- ambique and South Africa and to network expansion by mobile operators. In the Middle Source: World Bank, PPI Project Database. P R I V A T E I N F R A S T R U C T U R E A C T I V I T Y D O W N B Y 3 0 P E R C E N T I N 2 0 0 2 Top five developing countries by investment went to new projects, while in the investment in infrastructure projects other three countries most went to projects that Table with private participation, 2002 had reached financial closure in 1990­2001 2 (such as privatized telecommunications com- Investmenta panies). China accounted for the largest num- Country (2002 US$ billions) viewpoint Brazil 6.8 ber of projects reaching closure in 2002, with India 5.1 activity focused primarily in natural gas distri- Czech Republic 4.2 bution and water (table 3). is an open forum to Mexico 3.8 encourage dissemination of China 3.7 Canceled projects public policy innovations for Total 23.5 Private participation in infrastructure has not private sector­led and been free of difficulties. In 2002, 10 infrastruc- market-based solutions for a. Includes investment in 2002 in projects reaching financial closure in ture projects with private participation were 1990­2002. development. The views Source: World Bank, PPI Project Database. canceled, with the projects returning to the gov- published are those of the ernment. These brought the number of proj- authors and should not be Top five developing countries by ects reaching financial closure in 1990­2002 attributed to the World infrastructure projects with private and then canceled by 2002 to 57. Still, the 57 Bank or any other affiliated Table participation closing in 2002 canceled projects accounted for only a small organizations. Nor do any of 3 Country Projects share of the private activity in infrastructure-- the conclusions represent China 48 2 percent of the projects and 3 percent of the official policy of the World Brazil 6 investment in 1990­2002. Bank or of its Executive India 6 Directors or the countries Chile 5 they represent. Poland 5 Total 70 Notes To order additional copies 1. The Private Participation in Infrastructure (PPI) contact Suzanne Smith, Source: World Bank, PPI Project Database. Project Database includes only low- and middle-income managing editor, Room I9-009, countries, as classified by the World Bank. It dropped the Income group trends The World Bank, Republic of Korea from the 2002 update because that 1818 H Street, NW, In low-income countries private activity rose country was reclassified from upper middle income to Washington, DC 20433. from US$8.9 billion in 2001 to US$10.2 billion high income. For the country income classification used in 2002, among the group's highest investment in the 2002 update, see http://rru.worldbank.org/PPI/ Telephone: levels in 1990­2002 (figure 3). Energy and trans- methodology.asp. Project information and country clas- 001 202 458 7281 port projects drove much of the growth. Con- sifications in the database are updated annually. Fax: versely, in middle-income countries private 2. All dollar amounts are in 2002 U.S. dollars. Nom- 001 202 522 3480 activity fell significantly. In upper-middle- inal figures have been deflated using the U.S. consumer Email: income countries investment flows dropped to price index. The PPI Project Database records total ssmith7@worldbank.org US$24 billion, the lowest since 1994. Telecom- investment in infrastructure projects with private parti- munications and transport explained most of cipation, not private investment alone. Investment com- Produced by the decline. In lower-middle-income countries mitments include expenditures on facility expansion, Maryland Composition investment flows fell to US$13 billion, the low- divestiture revenues, and license or canon fees. Company, Inc. est since 1993. Investment flows declined in all sectors except water and sewerage, where they Printed on recycled paper remained at US$1.4 billion. Top countries A few countries accounted for most of the pri- vate activity in 2002. Indeed, the top five at- tracted 50 percent of the investment (table 2). In China and the Czech Republic most of the T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / V i e w p o i n t / i n d e x . a s p