Irwin, Timothy Cressey

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Irwin, Timothy Cressey

Fiscal Affairs Department, International Monetary Fund

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Fiscal Affairs Department, International Monetary Fund

Last updated January 31, 2023

Biography

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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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, Timothy

Many 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.
Infrastructure for Poor People : Public Policy for Private Provision

(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, Timothy

When 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.
Walking Up the Down Escalator : Public Investment and Fiscal Stability

(World Bank, Washington, DC, 2007-03) Easterly, William ; Irwin, Timothy ; Servén, Luis

Fiscal 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.
Price Structures, Cross-Subsidies, and Competition in Infrastructure

(World Bank, Washington, DC, 1997-02) Irwin, Timothy

Governments 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.
Privatizing Infrastructure : Capital Market Pressures and Management Incentives

(World Bank, Washington, DC, 1996-10) Irwin, Timothy ; Alexander, Ian

The 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.
Exchange Rate Risk : Allocating Exchange Rate Risk in Private Infrastructure Projects

(World Bank, Washington, DC, 2003-12) Gray, Philip ; Irwin, Timothy

Each year developing countries seek billions of dollars of investment in their infrastructure, and private investors, mostly in rich countries, seek places to invest trillions of dollars of new savings. Private foreign investment in the infrastructure of developing countries would seem to hold great promise. But foreign investors must cope with volatile developing country currencies. Many attempts to do so have created as many problems as they have solved. This note proposes that investors take on all financing-related exchange rate risk, even though this may mean higher tariffs for consumers as a premium for bearing that risk.
Exchange Rate Risk : Reviewing the Record for Private Infrastructure Contracts

(World Bank, Washington, DC, 2003-06) Gray, Philip ; Irwin, Timothy

Among the key risks facing foreign private entities investing in the infrastructure of developing countries is depreciation or devaluation of the local currency. Indeed, over the past 25 years developing country currencies lost 72 percent of their value relative to the U.S. dollar on average-and about a fifth lost more than 99 percent of their value. Sustainable private investment in infrastructure depends on addressing this risk well. Private infrastructure contracts in developing countries have usually passed much of this risk on to customers or the government. But because devaluations and large depreciations in developing countries often occur in the context of macroeconomic and financial upheaval, such risk allocations cannot always be made to work. The difficulty arises because the contracts raise prices precisely when the economy is suffering the most. If the government bears the risk because a state-owned utility is purchasing power from an independent power producer at prices denominated in U.S. dollars, for example, a contract will require steep increases in local currency prices just when the utility ' s revenues-and those of its owner, the government-are likely to be declining.
Some Options for Improving the Governance of State-Owned Electricity Utilities

(World Bank Group, Washington, DC, 2004-02) Irwin, Timothy ; Yamamoto, Chiaki

Most government-owned utilities in developing countries perform poorly when judged as providers of electricity, in part because politicians and officials use their power, not to encourage the utilities to increase sales, improve the collection of bills, and cut costs, but to transfer resources to politically influential groups and, sometimes, extract bribes. To improve the performance of government-owned electricity utilities as electricity utilities, rules and practices must be changed in a way that reduces politicians' willingness or ability to use the utilities for political purposes and subjects the utilities to new sources of pressure to perform well. This paper considers ways in which a government might seek to achieve this goal without privatizing. It focuses on changes in corporate governance-that is, changes in the rules that structure the relationship between the company and the government as its owner. It concludes that governments should be cautious about the prospects for improvement without privatization-since, among other things, creating a truly arms-length relationship between the government and the utility will always be difficult as long as the government remains the utility's owner-but that improvements in corporate governance are still worth pursuing.
Public-Private Partnerships in the New EU Member States

(Washington, DC: World Bank, 2007) Budina, Nina ; Polackova Brixi, Hana ; Irwin, Timothy

Public-private partnerships (PPPs) operate at the boundary of the public and private sectors, being neither fully public nor fully private. PPPs are defined in this paper as privately financed infrastructure projects in which a private firm either: (i) sells its services to the government; or (ii) sells its services to third parties with significant fiscal support in the form of guarantees. Despite these common elements of PPPs across sectors, there are differences in the type of arrangements that are typical in each sector. This study focuses on whether and when using PPPs can create fiscal space for additional infrastructure investments in the EU8. In doing so, the paper will examine the fiscal risks of PPPs and the role of fiscal institutions in this regard, including how these affect the use and design of PPPs and thus the potential for creating fiscal space while promoting investment in infrastructure. Chapter 2 distinguishes the illusory from the real fiscal effects of PPPs. Chapter 3 relates the extent to which PPPs reduce fiscal costs to the nature of fiscal institutions. Chapter 4 explains how fiscal institutions can be improved to encourage fiscal prudence in the use and design of PPPs. Chapter 5 concludes.