Irwin, Timothy Cressey
Fiscal Affairs Department, International Monetary Fund
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Fiscal Affairs Department, International Monetary Fund
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Last updated January 31, 2023
Tim Irwin worked at the World Bank from 1995 to 2008, on among other things the regulation of utilities and the link between public financial management and privately financed infrastructure projects.
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Now showing 1 - 10 of 21
Avoiding Customer and Taxpayer Bailouts in Private Infrastructure Projects: Policy toward Leverage, Risk Allocation, and Bankruptcy(World Bank, Washington, D.C., 2004-04) Ehrhardt, David ; Irwin, TimothyMany private infrastructure projects mix regulation that subjects the private company to considerable risk, a government or regulator that is reluctant to see the company go bankrupt, and high leverage on the part of the company. If all goes well, equityholders make a profit, debtholders are repaid, customers pay no more than they expected, and the government is not called on to bail the company out. If all goes badly enough, however, the prospect of bankruptcy will loom. Unwilling to see the company go bankrupt, however, the regulator will have to permit an unscheduled price increase, or the government will have to inject taxpayers' money into the firm. In other words, the combination means customers and taxpayers bear more risk than would appear from the regulations governing the private infrastructure project. The authors examine how these problems have played out in five cases. Then they describe how governments and regulators can quantify the extent of the problems and, using option-pricing techniques, value the customer and taxpayer guarantees involved. Finally, the authors analyze three options for mitigating the problem: making bankruptcy a more credible threat, limiting the private operator's leverage, and reducing the private operator's exposure to risk. The authors conclude that appropriate policy depends on the tax system, the feasibility of enforcing bankruptcy, and the benefits of risk transfer from taxpayer to the private sector.
Publication(Washington, DC: World Bank, 2003) Brook, Penelope J. ; Irwin, Timothy C. ; Brook, Penelope J. ; Irwin, Timothy C.The chapters in this book examine the data on infrastructure and the poor in developing countries and consider how policies centered on private provision can address their needs. Many of the chapters focus on the extent to which the poor have access to infrastructure services of reasonable quality, for example, to water that is safe to drink, to a reliable source of electricity, and to a nearby telephone. Access to such services is, of course, not the only infrastructure issue that matters to the poor; the poor who already have access to modern services care, for instance, about the price and reliability of those services. However, in most developing countries access is the key issue. In these countries most of the poor have no access to standard infrastructure services provided by utilities. Instead they often pay high prices for lower-quality substitutes: they might buy water by the bucket from a private vendor and use candles instead of electricity for lighting. They would rarely make a telephone call. The lack of ready access to good basic infrastructure services can directly reduce the well-being of the poor.
Public Money for Private Infrastructure : Deciding When to Offer Guarantees, Output-based Subsidies, and Other Fiscal Support(Washington, DC: World Bank, 2003-08) Irwin, TimothyWhen governments seek private investment in infrastructure projects, they usually find themselves asked to provide grants, guarantees, or other forms of fiscal support. Often they prefer to provide support in ways that limit immediate cash expenditure but sometimes generate large costs later. Seeking to provide support without any immediate spending of cash, for example, governments often agree to shoulder project risks and sometimes encounter fiscal problems later. For example, in the 1970s and 1980s in Spain, the government was obliged to pay $2.7 billion when the exchange-rate guarantees it had given private toll roads were called (Gomez-Ibanez 1993). More recently, the Indonesian government agreed to pay $260 million as a result of its agreements, through the electricity company it owns, to bear demand and foreign-exchange risks in private power projects. Yet even when governments have chosen to provide cash subsidies they have not always achieved their apparent goals: for example, over 80 percent of the Honduran government's "lifeline" electricity subsidies go to customers who aren't poor (Wodon et al. 2003). In still other cases, governments' decisions not to provide support may have caused problems.
Publication(Washington, DC: World Bank, 2007) Irwin, Timothy C.Government guarantees can help persuade private investors to finance valuable new infrastructure. But because their costs are hard to estimate and usually do not show up in the government's accounts, governments can be tempted to grant too many guarantees. Drawing on a diverse range of disciplines, including finance, history, economics, and psychology, Government Guarantees : Allocating and Valuing Risk in Privately Financed Infrastructure Projects aims to help governments give guarantees only when they are justified. It reviews the history of government guarantees and identifies the cognitive and political obstacles to good decisions about guarantees. It then develops a framework for judging when governments should bear risk in an infrastructure project (seeking to make precise the oft-invoked principle that risks should be allocated to those best placed to manage them); explains how guarantees can be valued; and discusses how aspects of public-sector management can be modified to improve the likely quality of government decisions about guarantees.
Publication(World Bank, Washington, DC, 2007-03) Easterly, William ; Irwin, Timothy ; Servén, LuisFiscal adjustment becomes like walking up the down escalator when growth-promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short-term cash flows matter, a preponderant focus on them encourages governments to invest too little. Cash flow targets also encourage governments to shift investment spending off budget, by seeking private investment in public projects-irrespective of its real fiscal or economic benefits. To evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, but they do not provide a satisfactory solution to the underlying problem. Governments can more effectively reduce the biases created by the focus on short-term cash flows by developing indicators of the long-term fiscal effects of their decisions, including accounting and economic measures of net worth, and where appropriate including such measures in fiscal targets or even fiscal rules, replacing the exclusive focus on liquidity and debt.
Publication(World Bank, Washington, DC, 1997-02) Irwin, TimothyGovernments often regulate not only the overall level of prices charged by infrastructure firms but also the relationship between prices for different services or customers. Prices can differ among different types of customers, even when no customers can be said to be subsidizing another, for example, when one asset is used to supply a service to two or more groups of customers. One of the hurdles that governments must overcome in introducing competition in infrastructure is dealing with the social and political implications of changing price structures, or rate rebalancing. Generally, competition should reduce overall costs in the sector, lessening the need to compensate groups hurt by price increases resulting from rate rebalancing. But if the efficiency gains are not enough to offset the price increases for some groups and the government is worried about the political and social costs of rate balancing, it has three basic options: 1) preserving the old price structure; 2) funding price subsidies from general tax revenue rather than from transfers within the firm or industry; and 3) relying on social safety nets rather than price subsidies. Whichever option a government chooses should stand up against the following four tests: 1) Do subsidies reach the people the government most wants to support? 2) are the costs clear and measurable? 3) Are the administrative costs as low as possible? 4) Is the revenue raised from the source that entails the least cost to the economy? This Note looks at the three options in practice and reviews how they measure up against the four criteria. It concludes that governments should eliminate price subsidies if politically feasible. But even if they cannot, they can still reap the benefits of competition.
Publication(World Bank, Washington, DC, 1997-09) Alexander, Ian ; Irwin, TimothyThis Note compares the effects of price cap and rate-of-return regulation on the risk borne by regulated utilities. It present evidence that price cap regulation subjects firms to greater risks and therefore raises their cost of capital. This result has one clear implication: firms regulated by price caps must be permitted to earn higher returns. If they are not, they will be unable to attract new investment capital and the quality of their service will decline.
Publication(World Bank, Washington, DC, 1996-05) Klein, Michael ; Irwin, TimothyThe water industry differs in two key respects from such other network industries as gas, electricity, and telecommunications. First, it offers fewer opportunities for competition among suppliers, since the network of pipes accounts for a large part of the total cost of water and can be run efficiently only as a monopoly. Second, the quality of water is crucial but hard for consumers to check. So, to get the best performance out of water companies, governments need to regulate the price and quality of water. To do that job well, regulators must know the appropriate price. The authors explain that the best way to discover this price is to auction the right to supply water.
Publication(World Bank, Washington, DC, 1996-10) Irwin, Timothy ; Alexander, IanThe authors propose a number of privatization rules to ensure that management will improve after privatization. Governments should ensure that the privatized sector has several firms operating in industries that are local natural monopolies, so that if one operator goes bankrupt, another can readily take over. Governments should also permit concentrated ownership and foreign ownership, and profits should not be guaranteed through regulation.
Publication(World Bank, Washington, DC, 2005-07) Boyle, Glenn ; Irwin, TimothyOutput-based payments are an important tool of government policy. Sometimes governments offer "output-based aid" to subsidize services sold to households. Because output-based payments are tied to the delivery of outputs, they have an obvious advantage over input-based payments. In agreeing to make such payments, however, governments assume a liability not unlike that created by taking on debt. Moreover, in some cases the payment amounts are subject to considerable uncertainty. As a result governments may benefit from estimating both the costs of these commitments, and the new fiscal risks they create-and comparing these costs and risks with those of alternative policies. Output-based payments come in many forms, as do the risks they present. However, measuring the risks and costs of output-based schemes is feasible but also, inevitably, mathematical. Quantifying risk necessarily involves some knowledge, and application of probability and statistics; estimating the cost of uncertain payments that occur at different points in time, requires asset pricing techniques from modern finance theory. Nevertheless, most of the important issues are conceptual, rather than technical.