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 - 8 of 8
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(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, 2003-06) Gray, Philip ; Irwin, TimothyAmong 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.