Viewpoint RVed ]?o(ger Recent Trends in Private Participation in Infrastructure 19927 This Note dravs on -he The trencd of liberalizing and privatizing infrastric- This Note provides an overview of recent hardworkeofthetPPa ttLe activities that aegan in a te\V Countries in the trends in privcate participation in infrastructure Project Databasswepedevlopigmb More sector detail is set 1970s ancd 1980s turned into a wxave that has swvpt in cleveloping countries hv drawing on the out in their Notes: Gisele the world in the 1990s. Developineg Countries have World BIank's Private Plarticipation in Infra- Silva, Nicola Tynan, and been at the crest of this wave, pioneering better structure (PI'I) Project IDatabase. This cdatabal.-e Yesim Yilmaz, "Private Participation in the Water approaches to providing infrastructure services, tracks about 1,700 projects. ncwlv owned or and Sewerage Sector' reaping the henefits of increased competition ancd managed by private companies. that reachecd (Viewpoint t47, August customer focus, which have lec to higher efficiency financial closure in 1990-98 in wvater, transPort. 19981, Ada Karina lzaguirre, "Private andl the casing of fiscal constraints. Market leaders telecommtunications, and energy (electricity, Participation in the aimong cleveloping countries-such is Argentina. and ga.s transmission zancd distribution). Electr cit Sector" Chile, ancd Hungaty-have gone further in priva- Counting private projects and investments is a (Viewpoint 154, September 1998) and Ltzing infrastrricture than all hut a fewV indlustrial challenge for many reasons, and the general "Private Part cipation in countries (New Zealandc. the United Kingdomii, andl trencds wvairrant more confidence than the nuLIm- the Transmission and the tJnited States). hers clo (table 1: box 1). Distribution of Natural Gas" (Viewpoint 176, April 1999), Nicola Tyraan, "Private Partcipation in TABLE 1 INVESTMENT IN INFRASTRUCTURE PROJECTS WITH PRIVATE PARTICIPATION IN the Rail Sector" (Viewpoint 186,June DEVELOPING COUNTRIES BY SECTOR AND REGION, 1990-98 1999,) Dick Sommer, 1998 US$ billions "Private Part cipation in Port Facilities" ,,, L ,,; , I ., *i (Viewpoint 193, September 1999), and Sector forthcomIng Notes on Telecommunications 6.6 13.1 7.9 10.9 19.5 20.1 33.4 49.6 53.1 214.0 telecommunications, toll Energy 1.6 1.2 11.1 14.3 17.1 23.9 34.9 46.2 26.8 177.1 roads, and airports. Transport 7.5 3.1 5.7 7.4 7.6 7.5 13.1 16.3 14.0 82.2 Water and sanitation 0.0 0.1 1.8 7.3 0.8 1.4 2.0 8.4 1.5 23.3 Region East Asia and the Pacific 2.3 4.0 8.7 15.9 17.3 20.4 31.5 37.6 9.5 147.2 Europe and Central Asia 0.1 0.3 0.5 1.5 3.9 8.4 10.7 15.3 11.3 52.0 Latin America and the Caribbean 12.9 12.3 17.1 18.0 18.4 19.0 27.4 45.1 66.3 236.5 Middle East and North Africa 0.0 0.0 0.0 3.3 0.3 0.1 0.3 5.2 3.6 12.8 South Asia 0.3 0.8 0.1 1.2 4.3 4.0 11.4 13.7 2.3 38.1 Sub-Saharan Africa 0.0 0.0 0.1 0.0 0.7 1.0 2.0 3.5 2.3 9.6 Total 15.6 17.4 26.6 39.9 44.9 52.9 83.3 120.4 95.3 496.2 Note:O,O means zero or less than half the unit shown. Data may not sum to totals because of rounding. Source: PPI Project Database. The World Bank Group * Finasice, Private Sector, and Infrastructure Network Recent Trends in Private Participation in Infrastructure Database coverage includes build-own-transfer and build-own-operate contracts Projects that have reached financial closure and directly or as well as merchant power plants. indirectly serve the public. - Divestiture. A private consortium buys an equity stake in a Projects in water, transport, electricity, telecommunications, state-owned enterprise. The private stake may or may not and natural gas, but excluding movable assets, incinerators, imply private management oi the company. stand-alone solid waste projects, and small projects such as windmills. Definition of financial closure. For greenfield projects, and for Low- and middle-income developing countries in 1996, as operations and management contracts with major capital expen- defined and classified by the World Bank. diture, financial closure is defined as the existence of a legally binding commitment of equity holders or debt financiers to pro- Definition of private participation. The private company must vide or mobilize funding for the project. The funding must assume operating risk during the operating period or assume account for a significant part of the project cost, securing the development and operating risk during the contract period. A construction of the facility. For operations and management con- foreign state-owned company is considered a private entity. tracts, a lease agreement or a contract authorizing the com- mencement of management or lease service must exist. For Definition of a project unit. A corporate entity created to operate divestitures, the equity holders must have a legally binding com- infrastructure facilities is considered a project. When two or mitmentto acquire the assets of the facility. more physical facilities are operated by the corporate entity, all are considered as one project. Recording of investments. Investments and privatization rev- enues generally have been recorded on a commitment basis in Project types the year of financial closure (for which data are typically read- Operations and management contract. A private entity takes over ily available). Actual disbursements have not been tracked. the management of a state-owned enterprise for a given period. Where privatizations and new investments are phased and data This category includes management contracts and leases. were avai lable at financia I closure, they are recorded in Operations and management contract with major capital expendi- phases. ture. A private entity takes over the management of a state-owned enterprise for a given period during which it also assumes signifi- Sources. World Wide Web, commercial databases, specialized cant investment risk. This category includes concession-type con- publications, developers and sponsors, and regulatory agencies. tracts such as build-transfer-operate, build-lease-operate, and build-rehabilitate-operate-transfer contracts as applied to existing Contact. The database is maintained by the Private Participation facilities. in Infrastructure Group of the World Bank. For more information Greenfieldproject. A private entity or a public-private joint contact Shokraneh Minovi at 202 473 0012 or sminovi@ venture builds and operates a new facility. This category worldbank.org. What trencds have emerged in private participa- Rapid growth in private activity tion in infrastructure in cleveloping countries in the 1990s? IPrivate activitv-as- i measurecd by investment * Private activitV has grown rapidly, hut the pulb- flows to infrastructure projects with private lic sector still clominates. participation-grew cdramatically between 1990 * Private activity declined in 1998 from a high in and 1997, from iAbout IJSS.16 billion to 1.SS120 1997w falling most in East Asia ancd in energy. billion (figure 1) It then cleclined by about a * Telecommunications and energy have been fifth to USS95 1illion in 1998, a result of the finan- the leading sectors in private participation, and cial crisis that began in Asia in micl-1997. Private Latin America ancd East Asia the leacding activity in 1998. sustained by a US$19 billion regions. telecollmunicatkI)OS privatization in l3razil. itsell * Almost all developing countries have some severelv afflictedl hv the crisis, remained above private activity in infrastructure. the 1996 level. FIGURE 1 INVESTMENT IN INFRASTRUCTURE PROJECTS WITH PRIVATE PARTICIPATION IN DEVELOPING COUNTRIES, 1990-98 1998 US$ billions What is thU rclative Contribution of this investmcnt 120 in infrastructure projects with private participation 100 in total infrastructure investment? Aggregate data suggest that developing countries have invested 80 on average albout 4 percent of their national incotnes in infrastructure facilities, or about 60 tJS$230 billion a year. So the average annual invevstmnentts of albout US$100 billion in infrastruc- 40 ture projects witlh private participation over the 20 past three years accounted for about 40 percent of total infrastructure investment in developingy coun- 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 tries. But these projects typically attract some pub- lic financing, anci some public projects attract Source:PPI Project Database. some private financinu, Estimates using other cdata suggCst a private share of iInfrUstruCture investmient FIGURE 2 CUMULATIVE INVESTMENT IN INFRASTRUCTURE financing averaoing abtout 15 to 20 percent a vear-2 PROJECTS WITH PRIVATE PARTICIPATION IN DEVELOPING COUNTRIES BY REGION AND TYPE Leading sectors OF ACTIVITY, 1990-98 1998 US$ billions Telecommunic.tions and energy have led the 250 growtvh in private activity cluring the 1990s. The Operations and management contracts with expansion in private activity in these sectors has major capital expenditure been spurrecl hy technological chan,ge that has Greenfield projects recLueec sunk costs, allowed major reforms in 150 _ Divestitures market struCture, and facilitated competition. Investments in telecommunications projects with 100 private participation grew continuously in 1990-98, from about USS7 billion to US$53 bil- _ lion. Cumulative investments in telecommunica- 50 lions atmnotinted to 43 percent of flows to all _ infrastl-uCture sectors in that period. Investments Latin East Asia Europe South Middle East Sub- in energy projects with private participation, onlv America and the and Asia and North Saharan wlrutI S$ lithion pivate90 pearticiatio, ahonl and the Pacific Central Asia Africa Africa about US$2 billion in 1990, peaked at about Caribbean lTSS46 billion in 1997 hefore clectining sharply to USS27 billion in 1998. Energy claimed about 36 Source:PPIProjectDatabase. percent of cumulative investments in 1990-98. Transport and vwater-where technological change has been less pronounced, political bar- activity during the 1990s. Latin America saw steadly riers to reform can be strong, and subnational (growth in investments in infrastriCture projects governments often play a major role-lag ged, with private participation in 1990-98, from UJS$13 together accounting for just 21 percent of cumu- billion to US$66 hillion, and toclay has the most lative investments. But these sectors, too, have private infrastructure activity. In 1997-98 private seen groNving private participation in the 1990s. activity in Latin America was marked by large pri vatizations in energy ancl teleCommunications, Leading regions especially in Brazil. Investments in East Asian infra- stuicture projects with private participation grew Among regions, Latin America and the Caribbean rapidly in 1990-97, from about US$2 billion to and East Asia have led the growth in private US$38 billion, then plummetecd to only tJSS9 Recent Trends in Private Participation in Infrastructure hillion in 1998. Investments in East Asia are now and a retorn to trencl growth rates (4.5 to 5 per- comparable to recent levels in Eu-rope and Central cent) is unlikely before 2001. But while the crisis Asia. the third-ranked region. was unexpectecily severe, there has also been recognition that many of the affected projects allo- The leading regions have pursued different types cated risk in ways that left private sponsors anal of private participation (figzure 2). Latin America financiers-as well as governments anal taxpay- and the Caribbean and Europe ancl Central Asia ers-unnecessarilv exposed. Singapore's prime have reliecl primarily on divestiture, often minister observed that iwe were concentrating on accompanied by market structut-e anal regulatory fast growth. quick infrastructure, but forgetting the reforms. By contrast, East and South Asia have fundamentals.' - Getting the policy fundamentals preferrecl greenfielcl investments, often focused right will requirc a stronger focus on competitive on hiulk supply facilities, such as inclependent market structutres. cost-covering tariffs, anal cred- pouwser proaducers. aleliverino to unrefoi-rmeal state ible governance friameworks for private investors. enterprises. Policy announce-