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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Now showing 1 - 10 of 12

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.
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.
Price Caps, Rate-of-Return Regulation, and the Cost of Capital

(World Bank, Washington, DC, 1997-09) Alexander, Ian ; Irwin, Timothy

This 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.
Estimating the Fiscal Risks and Costs of Output-Based Payments : An Overview

(World Bank, Washington, DC, 2005-07) Boyle, Glenn ; Irwin, Timothy

Output-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.
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.
Managing Contingent Liabilities in Public-Private Partnerships: Practice in Australia, Chile, and South Africa

(World Bank, Washington, DC, 2010) Irwin, Timothy ; Mokdad, Tanya

Contingent liabilities create management problems for governments. They have a cost, but judging what the cost is and whether it is worth incurring is difficult. Except in the case of contingent liabilities created by simple guarantees of debt, governments usually can incur contingent liabilities without budgetary approval or recognition in the governments accounts. So governments may prefer contingent liabilities to other obligations. (The uncertainty surrounding contingent liabilities can work differently. It is well known that PPPs create contingent liabilities, and the International Monetary Fund (IMF), the World Bank, and others often warn of the risks. The initial reaction of a cautious Ministry of Finance may be to seek to avoid all contingent liabilities.) Management problems also arise once a government has incurred a contingent liability. Projects need to be monitored to reduce risks if possible. Spending on contingent liabilities must sometimes be forecast, despite the difficulty.
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.
A Framework for Managing Government Guarantees

(World Bank, Washington, DC, 2020-05) Razlog, Lilia ; Irwin, Tim ; Marrison, Chris

Managing government debt guarantees is difficult because the potential costs of guarantees are hard to estimate and typically do not show up in the reported budget deficit. A good framework for managing guarantees can, however, help governments overcome the difficulty and enhance the transparency of guarantees. This paper sets out a checklist of issues for a government to consider when designing or revisiting its framework for managing guarantees. The checklist comprises: (1) steps to establish macroeconomic control over guarantees by setting limits on their use and restricting the authorization to grant them; (2) steps to improve decisions to grant individual guarantees by means of guidelines, restrictions, conditions, cost estimation, guarantees fees, and a structured process for making the decisions; and (3) steps to ensure careful management after the granting of guarantees, including the recording and reporting of guarantees, arrangements to pay when necessary, and learning from past experience.